If the CARS program has proved anything, it’s that America loves a deal. Big surprise there. In fairness, it also proves that giving away a billion bucks takes more than 30 days of preparation. And that good news is always welcome, even if it isn’t exactly good news. In the short term, the “success” of CARS is almost certain to bring about a re-up in funding; Cash for Clunkers will probably keep rolling along. In the longer term, there are two major issues to worry about. First, is the pull-forward effect. Redlining the market with federal stimulus will probably only delay a sustained and sustainable recovery in car demand. The second issue is that when the economy starts showing signs of sustainable, organic recovery, taxes are most likely going to be increased thanks to short-term stimuli like C4C. As the second most expensive purchase in a consumer’s lifetime, cars are likely to be especially vulnerable to reductions in take-home income. Doubly so if demand has already been pulled forward by said stimulus. With Cash for Clunkers, we are once again mortgaging long-term market stability and recovery for an orgy of feel-good consumption. Let’s try to enjoy the buzz while it lasts.
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