20.9.09

THE IMMEDIATE AND THE SUBSEQUENT CONSEQUENCES. A few weeks ago the Northern Star offered dueling colums on Cash for Clunkers. In its defense, one columnist considers the immediate consequences.

Cash for Clunkers shook many hands while driving away the dark cloud that lingered over the U.S. economy.

Of course, it helped the auto industry by selling cars, but in selling those cars, it insured that 2010 models would be produced, instead of a market flooded by 09 models. Cash for Clunkers also helped the related industries of steel, freight and financial services, while paying lip service to the environmental lobby.

The critical column gets by with a little help from Cold Spring Shops.

Cars are postponable purchases. Cash for Clunkers caused consumers, who would have been willing to hold on to their vehicles for another six months, year or even two years, to enter the car market now.

Thus, car sales rose dramatically during the summer. But over the next couple of fiscal quarters, or even years, new car sales will be at lower rates.

“What you’ve really done is moved some purchases further in time,” said Stephen Karlson, NIU Associate Professor of Economics, who was in Detroit during the 1982 recession. “You replace it now, but now these people have new cars that they can keep running into the future. So short-term, it does clear inventory out. But long-term you have to be careful about expecting any long-term positive effect for the car companies.”

The column offering a defense of the program identified some people who, while not trading in their older cars, received an opportunity to repair them using parts that could legally be resold from the clunkers.
[One such person has] a 1995 Pontiac Bonneville that has 189,000 miles on it. [She] had to have it in for service yesterday and out of the eight things that needed to be fixed on it, seven of them could be found at a junk yard because of the abundant Cash for Clunker cars. Out of the seven things that could be recycled from a junked car, five of them were out of date parts and were no longer available.
Some older cars that might otherwise be replaced in the next year or so will therefore remain in service.

This means cars with failing emissions, safety issues and more will stay on the road for a longer time.

“Some of those older things are going to hang around longer,” Karlson said. “You might have to start thinking, ‘Does it really make sense to scrap out usable existing cars, when that might have the effect of keeping other clunkier cars, where people don’t have the resources to trade them in, on the road longer?’”

Which, precisely, is what a cascade of repair parts from clunker to clunker accomplishes.

RUNNING EXTRA. In the Boston area, still a recession.
Nationwide, customers snatched up 700,000 new cars, most of them foreign-made, and the government ended up paying out nearly $3 billion toward the purchases. But from the start, analysts predicted that Cash for Clunkers would not boost sales for the year. September’s sales swoon seems to be making their case. Car sales are usually slow after Labor Day, but because of the recession consumers this year are especially reluctant to say yes to major purchases. To make matters worse for dealers, most are still waiting for voucher reimbursements.
(Via Drudge.)

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