By on October 30, 2009

Got a woody for clunkers? (courtesy:techspedia)

It is unfortunate that Edmunds.com has had nothing but negative things to say about a wildly successful program that sold nearly 250,000 cars in its first four days alone. There can be no doubt that CARS drummed up more business for car dealers at a time when they needed help the most.

The Department of Transportation’s Bill Adams lays into recent Edmunds.com analysis showing Cash For Clunkers could have cost as much as $24,000 per vehicle sale [via CNN]. But one man’s negativity is another man’s constructive criticism. After all, Adams doesn’t touch the heart of the matter: the program’s cost per vehicle, and Edmund’s analysis (like all analysis) was educated guesswork. Luckily, CNN was able to shed a little more light on how Edmunds came up with their numbers.

In order to determine whether these sales would have happened anyway, Edmunds.com analysts looked at sales of luxury cars and other vehicles not included under the Clunkers program.

Using traditional relationships between sales volumes of those vehicles and the types of vehicles sold under Cash for Clunkers, Edmunds.com projected what sales would normally have been during the Cash for Clunkers period and in the weeks after.

And guess what? Ford analyst George Pipas basically concurs with Edmund’s calculation of incremental sales, and therefore the cost of the program. But he still echoes the DOT’s line: C4C was a success… as long as you ignore the amount of money spent.

The whole purpose of the program was to provide some kind of catalyst to kick-start the economy, and by all accounts the extra production that was added this year was a boost to the economy.

Indeed it was. The White House says that up to 1.6 of the 3.5 percent increase in 3rd quarter GDP came from a cash-for-clunker-stimulated auto sector. Which explains why they’re lambasting the Edmunds report: like Ford, they have a vested interest in seeing Cash For Clunkers hailed as a success, and possibly even repeated. But that requires glossing over the fact that incremental stimulus estimates range from 30 to 60 percent of clunker sales, meaning that even by the most optimistic analysis, C4C was an expensive endeavor when measured on a per-incremental-sale basis. And, as Edmund‘s points out in their retort to the White House’s retort:

It is also claimed we missed the possibility that Cash for Clunkers generated excitement and consumers bought vehicles even if they didn’t qualify for the program — a claim that has been widely supported by anecdote but by little analysis. It does, after all, seem a bit odd that masses of consumers would elect to buy a vehicle because of a program for which they don’t qualify — doubly so when you add in the fact that prices shot up during Cash for Clunkers, creating a disincentive to buy.

September’s miserable sales showing by GM and Chrysler (the two automakers the US government most needs to be stimulated) shows that the stimulus had a hangover effect on demand (despite a possible flattening-out caused by the anti-stimulation of non-qualifying segments illustrated above), and (more importantly) a confusing effect on inventory and production strategy. The fact that C4C increased 4Q auto production may have been good for GDP numbers, but it actually makes another collapse of the taxpayer-owned automakers more likely if unstimulated  demand doesn’t catch up. Finding a real, sustainable bottom of the market from which to grow is not made easier by erratic bursts of stimulus frenzy. But then, if the cost per incremental sale of C4C doesn’t matter, why would another injection of cash into the reeling zombie automakers matter?

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43 Comments on “White House To Edmunds: Don’t Knock Cash For Clunkers...”


  • avatar
    texlovera

    Sounds like Edmunds isn’t backing down.

    Good for them.

  • avatar
    Pch101

    It’s a nice spat, but the fact remains that the Edmund’s analysis is based upon a comparison of future actual sales that have not yet occurred with a projection of future sales that would have allegedly occurred in the absence of C4C.

    Edmunds may be right or wrong, but whatever they are, they certainly haven’t shown anything in their releases to reveal their methodology. Perhaps they did well with it, or it could be complete GIGO, but without some support for how they got their figures, there isn’t much to talk about.

    The White House says that up to 1.6 of the 3.5 percent increase in 3rd quarter GDP came from a cash-for-clunker-stimulated auto sector. Which explains why they’re lambasting the Edmunds report: like Ford, they have a vested interest in seeing Cash For Clunkers hailed as a success, and possibly even repeated.

    You’re confusing the point. If the White House is correct in claiming that much of Q3 GDP came from C4C, then that is quite a good argument for having done it. That was the whole point of doing this in the first place, and if that result is accurate, then it was money well spent.

  • avatar
    jkross22

    Wildly successful program = spending all the money we earmarked for a giveaway. I wonder if Mr. Adams’ family (no pun) spends all of their income and calls it a success. Me thinks not.

    More attempted bullying by a government agency.

    Kudos to Edmunds for not kowtowing to the noise.

  • avatar
    johnthacker

    I read the CEA report. A few points:

    1) We won’t know anything until not only the September numbers, but also the October and November (and possibly December) numbers come out. The big difference between the reports is that the CEA said that the only C4C hangover month would be September, and that very little sales would be pulled forward from October and November and December. In their report, sales are only pulled forward from the next month, September, and from several years from now. (The latter is agreed to be real stimulus.) This is based on the post-9/11 sales and the Employee Pricing sales events and what happened after they ended. Edmunds argues that October, November, and December will also see somewhat fewer sales due to sales being pulled forward by C4C. Personally, I think Edmunds has a point– with the automaker sales, a consumer could think that this sale would only be extended by another month. With C4C, there was a much more solid deadline and a chance of running out of money.

    2) Even then, we won’t really know. We’ll still be arguing about what the sales rate “would have been” without C4C.

    3) The CEA report is far more nuanced than the White House blog. The CEA report gives several fairly different estimates, a pessimistic, optimistic, and middle ground estimate. It also references estimates more optimistic than its average– like from Deustche Bank, Moody’s, and GM– and estimates less optimistic than its average– like from Ford and some other analysts. It says that all these estimates are reasonable projections, but for obvious reasons the CEA believes its own estimates.

    4) The CEA report was issued September 10, before the September numbers were out, and their “optimistic” projection already appears wrong. Based on the size of the decline in September compared even to earlier in the year, the CEA’s optimistic projection is almost surely wrong. The data is reasonably close enough to the pessimistic projection and the average prediction, but the big tell is going to be with the October and November data, since all the CEA numbers predicted little hangover in October and November.

  • avatar
    johnthacker

    It’s a nice spat, but the fact remains that the Edmund’s analysis is based upon a comparison of future actual sales that have not yet occurred with a projection of future sales that would have allegedly occurred in the absence of C4C.

    As is the CEA report that the White House cites, except that it was issued September 10, before even the September data was released. If you think that that means that the Edmunds report is unreliable, then you have to discount the CEA report too. Its estimates are largely based on what they believe would have happened if the post-9/11 incentives and the Employee Pricing sale of 2005 had not happened.

    I agree that it’s too early to tell, which is why the White House blog should be like the CEA paper and acknowledge the uncertainty until the later numbers come in.

  • avatar
    Steven02

    I don’t think that it was successful at all. Sure, it sold cars while it was going, but the numbers for Sept were terrible because everything was bought the previous month.

    It also put many more people into debt that probably can’t afford. Made the GDP numbers go up, as well as our national debt, and consumers now have more debt as well. I don’t think you can call that successful.

  • avatar
    Pch101

    If you think that that means that the Edmunds report is unreliable, then you have to discount the CEA report too.

    I’m looking at the actual GDP report. It’s pretty clear from that that the increase in motor vehicle sales as compared to the three previous quarters comprised a large chunk of the increase in overall GDP. (My rough eyeball SWAG of an estimate puts it somewhere around 30%.)

    The methodology for Edmund’s assumptions are not provided, so they are impossible to judge. If they provide some details, I’ll be willing to look at them. For now, it sounds like a good PR exercise for them, and they should be grateful for the attention.

  • avatar
    Dynamic88

    …but without some support for how they got their figures, there isn’t much to talk about.

    That isn’t going to stop the pundits.

  • avatar
    johnthacker

    I’m looking at the actual GDP report. It’s pretty clear from that that the increase in motor vehicle sales as compared to the three previous quarters comprised a large chunk of the increase in overall GDP.

    Sigh. But the entire dispute is whether there will be a hangover of decreased auto sales in Q4. The Q3 GDP report is useless because it doesn’t answer that question.

    Edmunds certainly doesn’t dispute the Q3 GDP numbers or the sales volume during C4C. You realize this, don’t you?

    Your point is 100% irrelevant to the dispute. It discusses absolutely no evidence that isn’t fully acknowledged by both parties, and does not address the pertinent question at all– were significant sales pulled forward from October and November and December 2009, and thus will sales figures see a hangover effect?

    The CEA argues that, based on the Employee Pricing and the post-9/11 sales, the only short-term hangover would be decreased sales in September 2009, and sales in October through December should be unaffected, with all other sales being pulled forward several years. Edmunds is projecting that the sales the rest of the year will be depressed somewhat. That is the dispute.

    Of course, we don’t know the answer to that yet. We can’t know that. That’s why the CEA report that the White House is touting fully admits that the other projections, including one by Macroeconomic Advisers that was even more pessimistic than Edmunds, are plausible projections.

  • avatar
    Pch101

    But the entire dispute is whether there will be a hangover of decreased auto sales in Q4.

    Many of you don’t seem to realize that the automotive industry is a seasonal business. Q4 sales almost always drop off from Q3.

    It isn’t enough to say that Q3 sales exceed Q4 sales strictly because of the “pull forward” component, when Q3 sales are traditionally above Q4 during all economic cycles. The critics have ignored this reality, but past sales data makes it clear that makes no sense to ignore it.

    Edmunds certainly doesn’t dispute the Q3 GDP numbers or the sales volume during C4C. You realize this, don’t you? Your comment is irrelevant to the dispute.

    It certainly is relevant. Those of you looking for political ammunition want us to conduct a cost-benefit analysis while ignoring the benefits. At worst, that strikes me as being disingenuous.

    Nobody claimed that C4C was free. The question is whether we got what we paid for. I know one thing – Edmund’s does nothing to answer that question, when it’s the only question that really matters.

  • avatar
    johnthacker

    Many of you don’t seem to realize that the automotive industry is a seasonal business. Q4 sales almost always drop off from Q3.

    It isn’t enough to say that Q3 sales exceed Q4 sales strictly because of the “pull forward” component, when Q3 sales are traditionally above Q4 during all economic cycles. The critics have ignored this reality, but past sales data makes it clear that makes no sense to ignore it

    Certainly numbers must be seasonally adjusted. But the Edmunds report, and all those of other projections, including the CEA and the forecasters both more optimistic, like Moody’s and GM, and less optimistic like Macroeconomic Advisers and Ford, are based on seasonally adjusted numbers. If you go to Edmunds’ page, you’ll see that they seasonally adjust. (It’s particularly easy to see by comparing the monthly sales volume column to the estimated yearly sales figure based on the seasonally adjusted sales volume that’s in the table.)

    Your point is fine, but again, it’s already been dealt with.

    I’m beginning to think that you haven’t read the CEA report or looked at any of the web pages, but are just choosing to not familiarize yourself with the facts so you can spout off freely.

  • avatar
    RangerM

    If I take a cash advance on my credit card, can I claim my income went up?

    /sarc

  • avatar
    johnthacker

    It certainly is relevant. Those of you looking for political ammunition want us to conduct a cost-benefit analysis while ignoring the benefits. At worst, that strikes me as being disingenuous.

    What? You’re ignoring the costs. They’re not ignoring the benefits. They’re taking the benefits, the extra cars during that month, and comparing it to the costs, the cars not sold in subsequent months.

    This is exactly the same analysis that the CEA report did. The only difference is that the CEA decided, based on those two past sales, that there would be no hangover effect past September. They themselves in the report say that this result was somewhat surprising, and that they expected more of a hangover effect.

    Nobody claimed that C4C was free. The question is whether we got what we paid for. I know one thing – Edmund’s does nothing to answer that question, when it’s the only question that really matters.

    You realize that the CEA report disagrees with you too. The question of whether we got what we paid for (in economic stimulus, not environmental terms) is entirely determined by whether the money went to people who would have purchased a car anyway that same month or in the same year, or whether it induced people who otherwise would not have bought a car.

    You are completely disagreeing with the methodology and reasoning behind the CEA report. The CEA and Edmunds completely agree on the theory, methodology, and reasoning, as do Ford, GM, Moody’s, Macroeconomic Advisers, Deutsche Bank, and everybody else studying this. They simply disagree on their forecasts, which are based on a lot of guesswork. Edmunds report is based on guesswork, but so is the CEA.

    You, on the other hand, apparently reject the consensus reasoning of everyone who has seriously studied the problem, whether they believe that the program was very successful, very unsuccessful, or somewhere in between.

  • avatar
    Pch101

    I’m beginning to think that you haven’t read the CEA report

    I just got through telling you that I was looking at the BEA’s GDP report. (That is the agency that computes GDP.) I see the gain in motor vehicles sales, as compared to the total. Maybe I should provide you with a link to it?

    But the Edmunds report, and all those of other projections, including the CEA and the forecasters both more optimistic, like Moody’s and GM, and less optimistic like Macroeconomic Advisers and Ford, are based on seasonally adjusted numbers.

    I didn’t claim that they weren’t. What I said was, more than once, was that Edmunds did not provide the methodology used to calculate their forever-to-be-hypothetical figures for the non-C4C scenario that it used to calculate their result.

    I have no idea whether their numbers are crap or golden, because they provide no details of any kind to support how they got them. For all I know, somebody just made up some stuff and typed it into a chart, and I’d like to know how they arrived at their figures.

    What I am looking at is the actual GDP data, released yesterday, and it shows that the increase in motor vehicles sales compared to the last few quarters was a substantial piece of the overall GDP number. Unless you think that the BEA is lying or wrong, these numbers are absolutely beyond dispute.

  • avatar
    Madeleines Petite French Cakes

    Obama has the right to defend itself (even with BS), but the tone against Edmunds was so bratty and snarky. Considering that today AP is reporting that the White House is lying about the number of jobs “saved or created” by the stimulus, they have the gall to go after Edmunds and criticize its solid analysis. Nixonian.

  • avatar
    johnthacker

    From the CEA Report:

    From the abstract:
    The Car Allowance Rebate System (CARS)1 is one of several stimulus programs whose purpose is to shift expenditures by households, businesses, and governments from the future to the present.

    From paragraph II, on page 3:
    The first step in our analysis is to estimate the effect of the CARS program on motor vehicle sales, because sales are the ultimate driver of production and employment. But in calculating the effect of the program, we must know not just how many sales occurred, but how many sales would have occurred anyway (even without the program); the CARS program can be credited with an effect on sales only for those sales that would not have taken place in its absence. We need, further, to make assumptions about the extent to which the CARS-induced sales were “borrowed” from sales that would have occurred in the near future. These exercises are somewhat speculative, so we examine the sensitivity of our conclusions to what we view as reasonable alternative assumptions.

    From section C on page 6:
    For evaluating the stimulative effect of CARS, the most important question is the extent to which CARS-induced sales are “borrowed” from sales that would have occurred anyway in the near future (referred to in the industry as the “pull-forward” effect). Almost all CARS-induced sales reflect borrowing from some future date, since every automobile in use – like the clunkers being traded in – will eventually wear out and almost all will be replaced. A sale that is pulled forward from the distant future (say, two years in the future or later) probably can be assumed to have produced a genuine and substantial net stimulus.

  • avatar
    johnthacker

    What I am looking at is the actual GDP data, released yesterday, and it shows that the increase in motor vehicles sales compared to the last few quarters was a substantial piece of the overall GDP number. Unless you think that the BEA is lying or wrong, these numbers are absolutely beyond dispute.

    But nearly irrelevant if the sales were only pulled forward from the near future. Quoting http://www.whitehouse.gov/assets/documents/CEA_Cash_for_Clunkers_Report_FINAL.pdf the CEA report the White House linked to calling the program a success:

    For evaluating the stimulative effect of CARS, the most important question is the extent to which CARS-induced sales are “borrowed” from sales that would have occurred anyway in the near future (referred to in the industry as the “pull-forward” effect). Almost all CARS-induced sales reflect borrowing from some future date, since every automobile in use – like the clunkers being traded in – will eventually wear out and almost all will be replaced. A sale that is pulled forward from the distant future (say, two years in the future or later) probably can be assumed to have produced a genuine and substantial net stimulus.

    Section C on page 6 of the PDF.

  • avatar
    johnthacker

    I just got through telling you that I was looking at the BEA’s GDP report. (That is the agency that computes GDP.) I see the gain in motor vehicles sales, as compared to the total. Maybe I should provide you with a link to it?

    Yes, but the question is what will be the effect on the near future, whether the sales were just “pulled forward” from sales that would have happened in the near future. This is indisputable. The White House and the White House’s CEA agree on this. They just disagree as to the size and duration of the effect and how many were pulled forward from the near future as opposed to much later.

    The CEA and Edmunds agree about the basic framework and what is the measure of success. You are off somewhere else disagreeing with the White House.

    The only reasonable thing to do is to wait until the October and November (and possibly December) sales figures are released, although even then, as the CEA agrees, all numbers, including theirs, will remain speculative.

  • avatar
    86er

    Please tell me that the car in the background is a lowly Deville and not the 93-96 Fleetwood Brougham.

    If not, that coupled with the Roadmaster wagon in that picture bound for the crusher, I’ll be inconsolable.

  • avatar
    Pch101

    But nearly irrelevant if the sales were only pulled forward from the near future.

    It’s ridiculous to claim that all of the sales could have been pulled forward. To believe such a thing would be akin to arguing that car prices are demand inelastic, i.e. that making cars cheaper doesn’t result in more cars being sold.

    Of course sale volumes should go up in total. If you can’t understand this, then you need to go back to capitalism school.

    That is not the issue at hand. The bottom-line question is a matter of quantifying the increase, and comparing the cost of getting that increase with the economic benefit that resulted from the increase.

    Even Edmunds doesn’t claim that every sale was pulled forward; they’re not that dumb.

    Let’s say for the sake of argument that 20% of the new sales were genuinely new sales. What does that, by itself tell you?

    The answer: Not much. Without more data, such as the benefit from the multiplier, it doesn’t tell you anything useful.

    Again, you folks are chasing the wrong question. The program cost $X to fund, that much we know. The issue is whether the benefit exceeds that $X cost. If it does, it was a success. If it doesn’t, it was a failure. Edmunds doesn’t address this, so while it’s interesting to see what they have to say, they’re missing the point that counts.

  • avatar
    John Horner

    “In order to determine whether these sales would have happened anyway, Edmunds.com analysts looked at sales of luxury cars and other vehicles not included under the Clunkers program.”

    Which makes Edmunds guesswork fundamentally flawed. Part of what happened with the C4C program is that people got it in their heads that now might be a good time to get a new vehicle. Some of those people found out that their vehicle of choice and/or their trade-in wasn’t included in the C4C program and went ahead anyway. Thus some unknowable number of the not-C4C business was stimulated by the program without taking a penny from the Treasury. How big is that effect? Nobody actually knows, just as Edmunds is pulling numbers out of their spreadsheet jockeys.

    The real game here for Edmunds is to get “Earned Media” mentions, otherwise known as free advertising. Every time some talking head on TV or the ‘net talks to an “Edmunds Expert” it raises Edmunds’ profile and is free advertising of the best sort.

    “It is also claimed we missed the possibility that Cash for Clunkers generated excitement and consumers bought vehicles even if they didn’t qualify for the program — a claim that has been widely supported by anecdote but by little analysis.”

    Ok Mr. Edmunds, have you tried to actually analyze that aspect? No, because you can’t. Just like pulling correlations between luxury car sales and non-luxury car sales out of your **** isn’t real analysis either.

    The September sales fall off says more about the extraordinarily thin inventory which was on the ground after the gangbusters C4C sell off than it does about underlying demand. Dealer inventories of most popular models are still very thin today. We are probably another month or two away from seeing what the baseline demand is like.

    As far as the argument that C4C got consumers to take on more debt that they couldn’t afford, it simply isn’t true. US consumer debt FELL by $12 billion in August 2009 at the height of the program. Much of that decrease was in credit card debt, but “non-revolving credit such as student and car loans declined by $2.10 billion or 1.6 per cent to $1.56 trillion, the Fed said.”

    http://www.cbc.ca/money/story/2009/10/07/us-consumer-debt.html

    “Edmunds and criticize its solid analysis” Solid? You must be kidding. Edmunds pulls it’s almost out of thin air numbers are not solid analysis. They base their conclusion on their own from-thin-air forecast of expected sales levels through the rest of this year with and without the C4C effect. They are very close to simply making stuff up.

  • avatar
    johnthacker

    What I am looking at is the actual GDP data, released yesterday, and it shows that the increase in motor vehicles sales compared to the last few quarters was a substantial piece of the overall GDP number. Unless you think that the BEA is lying or wrong, these numbers are absolutely beyond dispute.

    No one disputes this. But no one, not even the CEA on whose analysis the White House is relying, believes that those are the important numbers. No one, whether they think that the program was effective or not. No one, whether they think that fiscal stimulus in general is effective or not. Just you. For everyone else, they agree with the CEA that “the most important question is the extent to which CARS-induced sales are “borrowed” from sales that would have occurred anyway in the near future.”

    Look, Edmunds could definitely be wrong, and you’re perfectly right to want to see their numbers and calculations. I’m not saying that Edmunds is right; I think it’s far too early and difficult to tell. As does the CEA, even though the White House blog was far more intemperate than the CEA report, which said that the estimates would change as more data came in. But while everyone else is disagreeing about the score, you’re playing an entirely different ballgame.

  • avatar
    Bunter1

    Regardless of the accuracy of the analysis it was stupid of the White House to say anything.

    It took a story that was buried in our little enthusiast universe and gave it some serious MSM play time.

    More people read it, considering the publics well justified distrust of politicians in general, more believe it.

    This is a PR battle Prez Goodwrench & Co can’t win and shouldn’t have fought.

    Bunter

  • avatar
    Pch101

    But no one, not even the CEA on whose analysis the White House is relying, believes that those are the important numbers. No one, whether they think that the program was effective or not.

    If you can’t see that this program was timed to boost Q3 GDP, then you are horribly naive.

    The administration was clearly looking for a way to boost the numbers. They got it. In that sense, the program is already an overwhelming success in the short run. Whether the ultimate benefit will exceed the costs remains to be seen.

  • avatar
    Dynamic88

    Purely anecdotal, but, the handful of people I know who bought under C4C had not been planning to buy a new car anytime soon. They had cars that were old (10 years +) and qualified for the program, but w/o the $4500 the program offered, no sale would have been made for the next few years at least. It seemed like a good time to get rid of the old horse before it went lame.

  • avatar
    racebeer

    Bunter1 …. +1

    Looking at the White House response, it looks an awful lot like how they are treating Fox News. I’m not saying Fox is right, but it certainly appears that if you don’t agree with the White House on an issue, you are taken to the woodshed for not being on board with the program. They need to get out of campaign mode and run the country like adults. If they can’t stand to be critized in any manner, they don’t belong in office. I’m waiting for the official “enemies list” to come out.

  • avatar
    Logans_Run

    I’m still waiting to see what the level of personal debt growth was from the C4C that is furthur going to burden the average maxed-out consumer. How many future repos did GMAC and others write in support of the C4C? We seem to already have some indications considering consumer spending appears to have dumped .6% in the month of September alone. So can we conclude that the C4C shifted spending away from other categories now that the maxed-out consumer now has to figure out how to make those new car payments?

  • avatar
    Gunit

    The program only makes sense if you ignore one half of the ledger: the additional debt that was created. But the kids will be paying for that, so as long as there’s an uptick in the economy under our watch we’re fine the consequences others will have to pay.

    Like any stimulus the sugar will wear off and resulting bonk will be worse.

  • avatar
    carve

    Don’t forget to factor in the lost value of losing a quarter million cars that were in good enough shape to have been insured for the past year.

  • avatar
    UnclePete

    As far as Edmunds’ report, while I haven’t looked at the numbers to agree/disagree with $24K/car traded, I believe that the C4C program was a pretty hefty price to pay for pulling some car sales forward.

    That said, I’m still a bit peeved about the kind of vehicles junked during this exercise.

    86er: Please tell me that the car in the background is a lowly Deville and not the 93-96 Fleetwood Brougham.

    If not, that coupled with the Roadmaster wagon in that picture bound for the crusher, I’ll be inconsolable.

    I’m with you on that. B and D body GM cars were some the last of the good GM cars IMHO; if you’re a RWD fan like me, they were the last good GM cars! You see a lot of B-body wagons running in this part of the world (central NH). Just the fact that they haven’t rusted away is a testament to their longevity.

    I recently went to look at a low-mileage D body Fleetwood, but it was sold before I got there.

  • avatar
    GS650G

    Only a politician would call spending other peoples money on someone else’s car a good idea.

    Well, politicians and the benefiting consumer. As George Bernard Shaw once said, a government that robs Peter to pay Paul can always count on the support of Paul.

    Now that a dead cat has bounced this quarter in car sales will we see another C4C scheme? I still have a crappy pickup truck I’d like to roll into a Japanese sedan and C4C is just the ticket to eliminate that pesky first year depreciation.

  • avatar
    Mark out West

    Mon Dieu! Not another LT1 Roadmonster Wagon lost to the crusher! Another rolling piece of Americana destroyed. You bastiges!

  • avatar
    RogerB34

    “…, then it was money well spent.”
    then it was your money well spent.
    Satisfied?

  • avatar
    charly

    It C4C program was not there to sell more cars but to sell cars for more. Everybody knows that the discounts were much smaller during C4C and the car companies and the dealers needed that extra profit to survive.

  • avatar
    obbop

    Why are CD interest rates so darn low?

  • avatar
    John Horner

    “I’m still waiting to see what the level of personal debt growth was from the C4C that is furthur going to burden the average maxed-out consumer”

    As I noted above, total US consumer automotive debt was down in August in the midst of the C4C program.

    http://www.cbc.ca/money/story/2009/10/07/us-consumer-debt.html

    It is only anecdotal, but the two people I know personally who bit on the C4C program paid the balance in cash and were not previously planning on buying a new vehicle anytime soon. This is consistent with what the car salespeople who actually did the deals have been saying of the majority of buyers as well.

  • avatar
    MadHungarian

    86er :
    Please tell me that the car in the background is a lowly Deville and not the 93-96 Fleetwood Brougham.

    If not, that coupled with the Roadmaster wagon in that picture bound for the crusher, I’ll be inconsolable.

    It is just a FWD DeVille. It nevertheless hurts bad to see that gorgeous Roadmaster die. Looks like it was in great condition AND, it was one of the blessed minority of them not outfitted in white with a baby-poo-tan leather interior.

  • avatar
    JonnyZX

    pch101 said:
    “You’re confusing the point. If the White House is correct in claiming that much of Q3 GDP came from C4C, then that is quite a good argument for having done it. That was the whole point of doing this in the first place, and if that result is accurate, then it was money well spent.”

    It’s a horrible argument for having done it, that means that much of Q3 GDP is nothing more than pulled forward demand, to be followed by a trough in sales — incidentally that is exactly what happened!
    As a matter of fact, all of the bogus, baloney doctored up GDP that was reported was the result of increased government spending. Government does not grow anything, except debt.
    From Q2 to Q3 government spending increased 7.2% in fact.
    So how do you figure there was any “growth” when there was such a huge increase in government spending? The money simply has to be paid back later by your kids and my kids in the form of the stealth tax called inflation, and actual taxes as well.
    The Obambi administration’s ridiculous arguments about C4C and “jobs created/saved” are getting tiresome.

  • avatar
    JonnyZX

    Madeleines Petite French Cakes —

    Bratty and snarky is the default tone of the tone deaf narcissists of the snotty Obama administration. They think they are smarter than the rest of us rubes and that we should go quietly into their Marxist, statist nightmare without so much as a whimper. Many of us have other plans, however.

  • avatar
    Pch101

    that means that much of Q3 GDP is nothing more than pulled forward demand

    You’ve provided no proof of that.

    It would be illogical to argue that all demand would be pull forward, unless we want to throw basic economic theory out the window. Basic supply and demand theory tells us that price reductions leads to higher sales levels — consumers respond to lower prices. From the consumer’s standpoint, C4C was effectively a price reduction, so new sales would have been generated on that basis. Absolutely illogical to believe anything otherwise.

    It makes no sense to argue your point. Obviously, there were at least some sales that would have not been made without C4C, that is Econ 101.

    The issue at hand is whether the new sales that were stimulated created more economic benefit than what was paid to generate them. Edmunds does not address this question.

    Let’s say for the sake of argument that Edmunds is right, and that each C4C sale cost $24,000 per unit. That alone does not tell you much. If the $24,000 in costs generated a multiplier leading to $50,000 in economic activity and/or reduced costs, then it was worth it. If the multiplier was below 1.0 and the benefit was less than $24,000, then it was a bad idea.

    So I will restate — the wrong question is being asked. While it is important to calculate the sales that were genuinely created vs. those that would have occurred anyway, that by itself is inadequate information.

    Government does not grow anything, except debt.

    That’s simply nonsense and displays your ignorance of economics. The fact that you felt the need to play the Marxist card in the next post just illustrates that you don’t know what you’re talking about.

  • avatar
    johnthacker

    If you can’t see that this program was timed to boost Q3 GDP, then you are horribly naive.

    Then you’re arguing that the White House and the President’s Council of Economic Advisers are “horribly naive.”

    Why in the world would you think that the President would want to boost Q3 GDP at the expense of Q4 GDP and of Q1 2010 GDP? Particularly when the Council of Economic Advisers repeatedly in their report disagrees with you?

    I could understand the President wanting to boost GDP through 2010 at the expense of GDP in the future past that, though.

    It would be illogical to argue that all demand would be pull forward, unless we want to throw basic economic theory out the window.

    Yes, it’s extremely unlikely that all the pull forward would be short-term. Just as it would strain credulity and throw basic economic experience (not theory, see below) out the window to claim that none of the demand was pull forward, as the Council of Economic Advisers noted. It would also do the same to claim that the program was a success based only on Q3 GDP and not on the pull forward effect on GDP and sales volume in the next several months, as the CEA noted.

    Basic supply and demand theory tells us that price reductions leads to higher sales levels — consumers respond to lower prices. From the consumer’s standpoint, C4C was effectively a price reduction, so new sales would have been generated on that basis. Absolutely illogical to believe anything otherwise.

    It makes no sense to argue your point. Obviously, there were at least some sales that would have not been made without C4C, that is Econ 101.

    This is highly misleading and could cause people to misunderstand economics. It is not illogical to claim that a product has a price elasticity close to or even equal to zero over certain price ranges. This is unlikely in experience for most goods, but neither basic supply and demand theory nor Economics 101 rule out the idea of zero price elasticity of demand, particularly over certain ranges.

    A common example given in Econ 101 textbooks is that of insulin, necessary to diabetics. Over a reasonably wide range of prices, they will buy the same amount of insulin regardless of price. Certainly this doesn’t apply to new cars, as they are hardly necessities (in particular, lesser cars and used cars are substitutes, as is using public transport).

    Indeed, no student familiar with Econ 101 should be unfamiliar with a graph showing zero price elasticity of demand and asking what the implications are. While it is certainly true that only the greatest necessities would have a zero price elasticity of demand (and then only over a limited range of prices where the buyer could economize on other products),

    It’s also Economics 101 that lower prices on one good can cause reduction in the consumption of other goods; under this framework, savings or future consumption can be considered other goods. So it is completely irresponsible to consider the program’s effects on car purchases alone and on Q3 alone.

    While it is certainly true that we are hamstrung by using projections for which assumptions must be made, and and for that reason I personally have no particular reason to trust Edmunds’s analysis over the CEA’s, also for that reason both are plausible, as the CEA admit. An analysis ignoring this factor is horribly incomplete and does, in the CEA’s opinion as well as mine, violate all understanding of economics by assuming that no pull forward occur.

    For that reason, it is worth waiting several months to compare actual results with the forecasts of the various groups, not just those of Edmunds and the CEA, but also those of Moody’s, GM, Ford, Deustche Bank, and Macroeconomic Advisers, among others. As I said, the initial CEA report was prepared in early September before the September sales data was out; the September sales data certainly was not according to the CEA “optimistic” forecast, though it did not rule out their average and pessimistic forecasts.

    That’s simply nonsense and displays your ignorance of economics. The fact that you felt the need to play the Marxist card in the next post just illustrates that you don’t know what you’re talking about.

    You don’t have much room to talk about ignorance when you’re directly contradicting the White House’s Council of Economic Advisers. Their report claiming that the program was a success specifically and repeatedly noted that the program could only be judged a success based on how many of the sales were pulled forward from the immediate future. You are committing the same sort of error that you are accusing him of, only in the opposite direction.

    JonnyZX is relatively firm ground when noting that if “much of Q3 GDP is nothing more than pulled forward demand, to be followed by a trough in sales” then the program would be judged a failure, as the CEA agrees in their report calling C4C as success. I agree with you that it’s a little strong to say without caveat that government does not grow anything except for debt, as that’s still a hotly debated question. However, I do note that you leave open the possibility of a multiplier for government spending of less than 1.0 (something that several eminent economists, such as Robert Barro of Harvard, have claimed, particularly with an open economy and a floating exchange rate as in the Mundell-Fleming model). In such a case, it would be a reasonable vulgarization to claim that government was creating nothing except for debt, since the economic activity created would be worth less than the debt incurred, so on net government would indeed have made us worse off and incurred net debt.

    Let’s say for the sake of argument that Edmunds is right, and that each C4C sale cost $24,000 per unit. That alone does not tell you much. If the $24,000 in costs generated a multiplier leading to $50,000 in economic activity and/or reduced costs, then it was worth it. If the multiplier was below 1.0 and the benefit was less than $24,000, then it was a bad idea.

    So I will restate — the wrong question is being asked. While it is important to calculate the sales that were genuinely created vs. those that would have occurred anyway, that by itself is inadequate information.

    Incorrect. That by itself is not necessarily inadequate information. It is reasonable to assume that the multiplier is relatively similar for all these sorts of government-stimulated demand programs. If we can find a product or program for which the elasticity of demand is greater than that of cars, then that would be sufficient to decided that the program is inefficient compared to other options.

    It is unnecessary to determine the exact benefit of the program. All that is necessary is to demonstrate that there was a better program to fund. This is a common argument used by, e.g., Brad DeLong when discussing the recent tire tariffs and how it would make more sense to simply tax poor people to give money to tire workers. Once you show that the policy is strictly inferior to another policy, there is no point in consider its exact benefit.

  • avatar
    johnthacker

    Christina Romer, chair of the President’s Council of Economic Advisers, is one of the foremost experts on stimulus and multipliers. (Her research is more ambiguous than her public statements, as politics force people to sound more certain than the conventions of academic research require.)

    Yet Pch101 has the temerity to contradict her about how to judge C4C and then claim that others don’t understand Economics 101!

    Everyone agrees about the correct way to measure the impact of C4C. Small differences in assumptions lead to different results. The program is unprecedented in US history, and the only analogies are admittedly imperfect. I would prefer that the Edmunds’s analysis be made public, but it’s absurd to use only Q3 GDP data to judge the program, and it’s absurd to think that a preliminary report issued September 10 is the final word, when we still await to see if actuals from Q4 match the projections in that report.

    The CEA report agrees, as the CEA notes within that they expect to update the report as more data comes in.

    It’s simply not worth jumping up and down prematurely on something that is so difficult to judge right now.

  • avatar
    Pch101

    Why in the world would you think that the President would want to boost Q3 GDP at the expense of Q4 GDP and of Q1 2010 GDP? Particularly when the Council of Economic Advisers repeatedly in their report disagrees with you?

    Thanks for the strawman, but that isn’t the claim at all.

    Incidentally, the CEA certainly did want an increase to Q3 GDP. As they state in the report that you claim to have read, “a perception that the program has helped the economy turn the corner out of recession could have had a real effect on consumer sentiment, market risk spreads, and other determinants of demand.” The report goes to some lengths to discuss the claimed impact on Q3 GDP. This period of time was clearly a big deal to them.

    It is not illogical to claim that a product has a price elasticity close to or even equal to zero over certain price ranges.

    It is completely illogical to make such an argument in this context. Perhaps that’s why the CEA report (that you selectively skimmed and at times misunderstood) makes the statement that “The assumption that no payback exists, however, is not plausible, and is not consistent with economic theory.” Apparently, they agree with me.

    You don’t have much room to talk about ignorance when you’re directly contradicting the White House’s Council of Economic Advisers.

    As noted, you obviously didn’t understand what you’ve read. Let’s try to explain this again.

    Let’s suppose you go shopping and spend $500. The question is asked: Did John get a good deal, or not.

    If all we know is that you spent $500, the answer is: We don’t know. If you paid $500 for a brand new laptop computer with some good specs, that might be a killer deal. If you paid $500 for a Number 2 pencil and bag of chips, then you got ripped off. Numbers without context don’t mean much.

    Ultimately, we need to know how many bona fide sales were created by the report. Everyone acknowledges that this is an important figure. But its importance belongs in the context of the greater issue of calculating the economic benefit and contrasting it to the cost.

    What the politically driven pundits miss is that the point of the program was to induce consumer spending. The government spends $4,500, and gets some larger amount of spending — perhaps $15,000-20,000 — in return.

    The sales figure is one component that goes into a larger formula. The ultimate exercise is of computing the benefit, and comparing it to the cost, with some consideration for the timing.

    As noted in the excerpt that I posted above, the timing of GDP clearly matters. Their goal was, in part, to get a good Q3 number that would hopefully encourage consumers to help drive a good Q4 number based upon a (hopefully) increasing stream of good news that defeats the doldrums. They are more politically savvy than some might appreciate, and perhaps more politically savvy than some of those who are reading these comments.

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