Chrysler, Ford Riding Government Incentives to First Sales Gains in 2 Years

It is hard to argue with the success of the “Cash for Clunkers” automobile incentive program so far. With $1 billion already blown through, Congress is working on a $2 billion extension, despite most Republicans being against the program (probably because it was a Democratic idea, not because it is not working).

So far the average consumer is trading in their clunker for a new car that gets 9 miles per gallon more than the vehicle it replaced. The sales spike during the last week of July has led both Chrysler and Ford to report July sales gains, the first increase in 2 years for the domestic automobile industry. General Motors reported a 19% decline in sales, but still saw an enormous benefit from the program.

It remains to be seen if car sales will be sustained at higher levels, but the glass looks half full at this point. New car inventories are near all-time lows so inventory rebuilding in coming months should boost GDP pretty significantly, perhaps leading to a positive GDP print for the third quarter.

The car companies are not the only beneficiaries, however. “Cash for Clunkers” helps consumers and the country as a whole too. Higher fuel efficiency should not be understated. Consumers will save money by spending less to fill up their gas tanks, freeing up money for other things. In addition, less pollution from the new vehicles not only is safer for Americans but the environment in general as well.

Despite skepticism from many, this program does this show that smart government spending can stimulate the economy. In this case it does so in more ways than one, making the investment well worth the several billion dollars spent.

Full Disclosure: No positions in Ford or GM at the time of writing, but positions may change at any time

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One Thought on “Chrysler, Ford Riding Government Incentives to First Sales Gains in 2 Years

  1. jturner on August 19, 2009 at 9:48 AM said:

    While I agree with the claim that govt spending can stimulate the economy, I disagree that it is a worthwhile investment in this case. All this program is doing is changing the timing of the purchases of these cars. It is not creating any new demand for cars because it is not improving productivity or savings.

    And that to me is the basic problem with all the govt stimulus and bailout plans. They are all forms of money printing, and monetary priming only encourages malinvestment, and the greater the level of malinvestment, the less savings there are for productive, wealth-building activities. As such, I feel that one of one of the only ways for the average person to protect him or herself is by owning gold and gold related assets, as the gold price moves inversely to the value of the dollar, which is being debased every day by the govt. For a further discussion on these issues and more analysis, see

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