Clunked Out

Car dealers are facing the boomerage effect of the so-called Cash for Clunkers program.  Dealers are reporting showrooms empty of customers.  Chrysler/Fiat is reporting sales are down 19%.  Toyota is planning a $1 billion marketing campaign and adjustments in dealer pricing to try to lure more people back to stores and help dealers close deals.

Despite hugely improved sales in July and August, September sales are set to be among the lowest in 28 years, tying an industry record low on statistics kept since 1976.

The problem is exactly what so many predicted would happen:  Hundreds of thousands of people who would otherwise have waited and bought new cars over the next several months instead bought them in July and August, cashing in on the government-sponsored incentive.  Now that those incentives are gone, there are fewer consumers looking to buy cars.  Instead of a natural progression of steady but low sales, the market experienced a brisk rise in sales and will now face lower sales over the coming months.

Indeed, Barclays predicts that sales will drop-off to pre-Clunkers levels.  In fact, it seems clear that sales are going to be well below Barclay’s predictions.  September already looks to finish with sales ofjust 8.8 million units, well below the 10.0 million predicted for this month.  I’ve placed a chart with the C.A.R.S. program period highlighted below:

US Auto Sales 2008-2009
US Auto Sales 2008-2009

Clearly, while C.A.R.S. succeeded in promoting sales during the rebate period, all it did was steal sales from later months.  No actual improvement in the auto market is apparent.

In other words, the predictions of the skeptics were true: Sales during the rebate period were simply canibalized from later in the year.  The result will be lower sales in the coming months, resulting in newly idled plants and lost jobs.  Reduced cash flow will force car companies and auto dealers to reduce their workforce.

In the end, we’re right back where we started.  Except that now, the government spent $3 billion of our money to get us here.

Cross-posted at Seeking Liberty.