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.

Along with lower car sales, the product mix hasn’t lived up to the expectations of EPA bureaucrats and the Obama administration. Kelley Blue Book reports that demand for large vehicles is up and sales of small cars are declining. This trend is due to a drop in fuel prices, the fact that many large cars are a better value, and that, given the choice, people like larger vehicles.

So if we recap the government’s cash-for-clunkers program, it looks like for our $3 billion we got a badly managed incentive program that spiked sales for two months, then collapsed and had little effect on buying habits. Of course, that hardly means our current administration, Congress, or environmentalists are through tampering with markets.

Just this week, Fisker, a declared producer of luxury “plug-in hybrid” vehicles, was awarded a $528 million federal loan to build an “affordable” version of its extended-range electric vehicle technology. Now, I like Heinrich Fisker and his $80,000 Karma model is a viable fit in the green luxury space, assuming it performs as promised. But isn’t the normal capital market the place to finance these ventures? After all, the company has willing dealers and more than 1,500 orders for its attractive, electric vehicle.

Fisker promises to build a car code-named Nina, a reference to Christopher Columbus’ discovery of the new world, and the projected price will be $39,900 after $7,500 in tax credits. I suppose that’s affordable, although it’s a lot more than the very efficient Ford Fusion Hybrid or a four-cylinder Camry or Accord. On the other hand, I’ll bet it looks really great when Heinrich puts his design talent to work on the styling.

Tesla, a producer of two-passenger electric roadsters that start at $101,500, received a remarkably similar loan to build its “affordable” sedan. In Tesla’s case our $465 million will help fund a pure electric that will retail for $49,900 after our $7,500 rebate. Buyers should stick to home base, since we’re not really doing much to provide public plugs for electrics to plug into. Gee, isn’t that a better place for stimulus? Just wondering …

There’s a teachable moment here. What if we canned all the unnecessary bureaucrats who keep busy doing the impossible job of trying to manage human behavior for what they believe is the public good? Instead, simply levy a carbon tax if the real goal is to increase fuel economy, lower our dependence on oil, and save the planet.

And electric cars do have a place in the automotive fleet, especially in and around major cities. But the government’s job isn’t to build them. Its best effort would be to encourage clean, nuclear power generation and help establish a smart plug-in grid in urban areas. That’s when I’ll take those efforts seriously and not as just another political gimmick.