Automotive Cooling

Looks like the government’s clunker stimulus plan really didn’t jumpstart the automotive business in any lasting fashion any more than other magnanimous money drops or bountiful bailouts have accomplished. After a sales spike in July and August, driven by outsized rewards for trading "guzzlers" for thrifty transportation choices, September sales set a 28-year record that redefines abysmal.

So why didn’t new car sales pick up any momentum from the cash-for-clunkers jumpstart? Bill Clinton might suggest, "It’s the economy, stupid." Sure, there’s still pent-up demand for cars and trucks, but our recession continues to degrade consumer confidence and too few buyers are ready to make costly commitments.

There are other factors at work as well. The auto industry had quite a bit of overcapacity before last year’s sudden gasoline price increase and tumble. The reorganization of both GM and Chrysler and retraction by other major automakers dramatically reduced that capacity. Now most popular models are in very short supply, keeping prices higher, and low lease rates are hard to find.

For both car buyers and many dealers, especially those who lost new car franchises, good used cars are usually a viable option. However, the clunkers program managed to take a lot of used cars out of the marketplace, creating an inventory shortfall. So now there are fewer new and used cars and higher prices during a recession because of government meddling in the marketplace.

Since the cash-for-clunkers program didn’t succeed in stimulating the auto business, even moments after it ended, didn’t it at least help sell more fuel-efficient cars and retire gas gobblers? It did indeed, for two short months. Take the case of Ford, a major beneficiary of clunker money. Its Focus and Escape models nearly sold out and the clunker trades were heavily represented by Ford Explorer SUVs. But Ford’s F-150 and Chevy’s Silverado pickups also made the government’s revised, final top-ten list, since they were eligible under the program’s truck rules.