More new information from today’s GAO post:
Moreover, whether enough time has passed for the impact of the structural changes to be seen is unlikely, especially given that the automakers have not completed restructuring, the economy is still recovering, and new vehicle purchases remain at low levels. For instance, although the federal Car Allowance Rebate System program resulted in a sales spike in August,16 September sales returned to historically low levels. These and other challenges are likely to delay the companies’ recovery beyond what it would be under more favorable economic circumstances.
As TTAC noted last Friday, “finding a real, sustainable bottom of the market from which to grow is not made easier by erratic bursts of stimulus frenzy.”
To be fair, that’s not exactly what the GAO is saying. They’re taking an agnostic position on to what extend C4C is depressing current sales through pull forward, but arguing that at the least, it does not seem to have sparked a rebound to previous sales levels. It appears to be a one time gift to the auto companies and people purchasing new cars, at the expense of people who couldn’t purchase a new car right now, other taxpayers, and people who, even with this money, could only afford (or wanted to buy) used cars. (The latter since the prices of used cars has shot up due to functioning cars being destroyed.)
Skepticism is understandable, and some pull forward is quite likely (some pull forward effect is predicted even by the CEA, which lauds the program; the dispute is about the size of the effect). However, the GAO is taking no position on the dispute between the CEA, Deutsche Bank, Moody’s, GM, Ford, Edmunds, and Macroeconomic Advisers as to the size and duration of the sales hangover.
It’s just noting that C4C has not been a panacea. In this the GAO is actually in some ways more negative than Edmunds; the Edmunds analysis argues that car sales would be returning to closer to normal seasonally adjusted rates if not for C4C.
As johnthacker says, the headline does not reflect was the report actually states.
Read our newest post. The Treasury does not have a divestiture plan yet, and the C4C spike is making it harder to determine GM and Chrysler’s true performance. By extension this makes formulating an IPO more challenging/time consuming.
I will grant that, compared to the other staggering obstacles to a taxpayer “return on investment”, this is a minor one. Still, unintended consequences at work.
I would say that the report doesn’t say that C4C didn’t help the recovery, it just didn’t hurt it either. To me, it says that C4C didn’t work if the point was to get the economy going.
C4C wasn’t there to help only GM and Chrysler. That is why all manufactures were able to take advantage of it.
I do agree with the other document saying the Treasury doesn’t know what they are going to do yet. I will also say that having a plan right now on what you are going to do would be foolish. If the economy is still in the dumps in 9 months, I don’t think a June 2010 IPO would make much sense. Sure the gov’t would not be owning GM and possibly Chrysler, it wouldn’t make much sense to prop up the company and then let it fail later because it wasn’t divested properly.
Why IPO next year. That only makes financial sense if you expect GM to go under fast as there is just not enough time to make GM perform well.
ps. After selling Opel i think it is obvious that GM will go down fast
Cash for clunkers was a complete disaster. By destroying almost 700,000 RUNNING cars, it caused used car prices to soar and revenue from car repairs and car donation to nose dive. This is just what charities that operate car donation programs told the polititicans would happen if the c4c cars were scrapped instead on sold or given to the poor.
http://www.cars4charities.org/
Everytime this administration flops, we end up getting a re-education on basic economics and why ignoring it only further stagnates our economy. This is what happened with C4C and the auto bailouts.
We really are more open minded and more intelligent than Washington gives us credit. After all, we have a huge percentage of college educated Americans, so why should they be surprised when we question the status quo? Not everyone believes the crap their professors tried to shove down their throats for a passing grade, a lot of folks like me faked it so they can get their post graduate degrees.
Consequentially, when the politicians propose spending even more of our money in losing sweetheart deals between them and lobbyists, a large portion of the electorate balk. When they meddle into auto policies and prop up GM and Chrysler, educated Americans reading TTAC and Edmunds point out the pol’s blatant stupidity. Our news media were bought out, but their former readers and subscribers obviously weren’t, and they come here to speak freely.
This administration doesn’t know what it is doing, and while that is OK in a way, it isn’t when they waste our money learning old economic truths. These self-righteous idiot leaders need to feel our heat, and be told boldly, “NO MORE!”
We gave them a fair chance. We gave them a TRILLION dollars to try. They failed. Now they have to start listening to us, right?
The point of the article is easy to understand: by distorting the market through C4C, it will merely take longer to get a good gauge on the true performance of these companies.
Look at manufacturing data for the months of Aug-Sept: up, but mainly to refill depleted inventories. There’s little sign of sustainable growth…yet. We’re likely to see very choppy manufacturing data for months as retailers keep inventories low and only order what is necessary to keep minimums in stock. The flip side of this is that we may see a supply constraint in several markets and resultant price increases.
As .gov continues to interfere in various markets (C4C, 1st time homebuyer credits, Cash for Fridges) it will become increasingly difficult to determine how, when and where monetary policy should adjust accordingly and where the real demand is.
Look at the homebuyer credit – likely to be extended because everyone knows that if it ends this month there will be a plunge worse than we saw after C4C. This does nothing but prolong the pain of the housing deflation and further distort the market by trying to reinflate a bubble that needs to drop another 20 – 30% to return to norms.