Thursday, April 2, 2009
Here is one of the latest in the U.S. government's quick-fix schemes. From the LA Times:
The road to recovery for U.S. automakers could be jammed with hundreds of thousands of gas-guzzling used cars, which President Obama hopes will be traded in for more fuel-efficient vehicles -- with the lure of government money.RW: Of course Mike thinks that it will have a large impact - he works for GM.
"We think it's an important element to get the customer back," said Jim Farley, Ford Motor Co.'s head of marketing and communications.
He predicted the stimulus could lead to an additional500,000 to 1 million sales a year. Mike DiGiovanni, GM's lead sales analyst, was more optimistic, saying the most conservative versions of the plans under consideration "could be worth at least a million more sales to the U.S. industry." If a more aggressive plan, with larger cash vouchers, were enacted, the sales increase could be as large as 3 million, he said.
A lot of the excitement is based on the experience of Germany, whose government is spending about $2 billion a year on such a program.RW: This is definitely over the top. First, I am wondering how many people actually drive the 8-year old car that gets just 18 miles/gallon - the auto that would be eligible for the $1,500-$4,500 tax incentive (the Senate bill, not in quote above but listed in the article). Second, with the labor market contracting more each consecutive month and credit conditions tight, how is the driver of an 8-yr old gas guzzler planning to afford a brand new automobile?
The country's new "scrapping bonus," which provides an incentive of about 10% of the average new car purchase price, helped boost new car registrations in February by 21%, according to German government data. The program is on track to reverse a projected 10% drop in new vehicle sales this year, said Pete Kelly, the senior director in Europe for J.D. Power Automotive Forecasting.
"We're actually seeing a market that is flat or growing, which is completely at odds with a German economy that is in quite deep trouble," he said.
A similar plan in France is projected to boost new vehicle sales there by as much as 8% this year, helping keep the market stable, Kelly said.
Barclays Capital estimated that a U.S. program similar to Germany's could boost sales by 3 million vehicles. But the increased sales would come with a big price tag: Matching that projection would cost the U.S. government $12 billion, Barclays estimated.
Car sales figures are showing signs of hope (although sales are still far from healthy). And the Fed's TALF program hasn't even registered its full impact in the credit markets for auto loans. Getting vehicle sales back on board would definitely do some economic good, but why not wait to see if the programs already in place pull some weight?