Trade-In Program Tunes Up Economic Engine

[question everything]

AUGUST 4, 2009

Trade-In Program Tunes Up Economic Engine

By JUSTIN LAHART
WSJ

Of the nearly $800 billion of stimulus funds, the $1 billion "Cash for Clunkers" program may offer the most bang for the buck in terms of jump-starting the economy. The program comes as auto dealers' inventories are running lower, after the bankruptcy-related shutdowns at General Motors Co. and Chrysler LLC. Car companies may need to raise production as a result, and to do that, they will have to boost their own depleted stockpiles of raw materials and parts. The prospect has some economists scrambling to raise their forecasts for growth in the second half of the year.

"A billion dollars for 'cash for clunkers' looks dramatically more efficient, dollar for dollar, than anything else the Congress has passed yet," Credit Suisse economist Neal Soss wrote in a note last week. The program played a big role in his upward revision of his projection for gross domestic product. Mr. Soss now expects GDP to grow at a 2% rate in the third quarter, up from his previous 1.3%.

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The longer-term effect of the program remains unclear. Some economists believe cash-for-clunkers merely moves spending on cars that would have occurred at some later date into the current quarter. "The essence of what it's going to do," said Nomura Securities economist Zach Pandl, "is move purchases up in time." That in itself, coming at a time when the economy appears on the cusp of recovery, is helpful, Mr. Pandl said. By boosting demand in the near term, the program will help bolster growth after a year of contraction, adding to the confidence of businesses and consumers alike. That, in turn, could lead them to increase spending.

(snip)


At his eight Boston-area dealerships, Village Automotive Group President Raymond Ciccolo says the sales he has made on the clunkers program are to customers who wouldn't normally buy new cars. At the same time, he has seen an upsurge in traffic from customers whose cars are worth too much to qualify for the program. "Any time you create traffic, you create the ability to sell a car," he said. "And if we can start selling cars now, they start coming back for oil changes, for body work, for new snow tires." Meantime, the increase in sales provides an income boost for the nearly 500 people that Mr. Ciccolo employs, giving them more wherewithal to spend. Similarly, if auto companies step up production, their workers will be working more hours, boosting their incomes and ability to spend.

http://online.wsj.com/article/SB124934426743203057.html (subscription)

Printed in The Wall Street Journal, page A3

[question everything]

1. Kick. The best buck for the money

One would think that the "pro-market" party would be the first to embrace the program.

Saying "NO" has a stronger urge, I suppose.