Sunday, August 2, 2009

Stimulus Works!

Reuters | New York Times


Just as the subsidy that stimulated Chinese auto sales, the Cash for Clunkers program has stimulated auto sales in the US. Instead of giving billions to the banks, which clutch onto their bail-out money with a miserly grip while doling out generous bonus to themselves, direct consumer subsidies work. Pragmatism would indicate that the course is clear from now on: Less money to the rich and powerful, and more money to the poor consumers who will spend on life's necessity.

There are critics who claim the Cash for Clunkers program is merely changing the timing of the purchase, and not creating new demand. A simple question: what is the purpose of ANY stimulus program? In simple terms, to SPEED up recovery, to stimulate the economy to RETURN to the same level of activity as in the past. To say that the program is merely shifting demand forward in time, is to say the patient is simply recovering. It's not even picking bones, it is outright calling a recovery a theft of future prosperity. Have these people no shame? Must partisan politics resort to falsehoods to score political points?


Ford Motor Co will report its U.S. sales for July rose from a year ago on a late-month surge under the federal government's "Cash for Clunkers" incentive program, senior U.S. executives said on Sunday.

The July increase marks Ford's first year-over-year monthly rise since November 2007, just before the U.S. economic downturn began, and the first increase for any of the largest automakers since the start of the financial crisis a year ago.

The result is "important to Ford, but it is also a very good indication for the economy," Ford U.S. sales chief Ken Czubay said in a telephone interview.

"It was a deep hole that the entire economy was in," Czubay said. "We may not be out of the hole, but we are seeing very encouraging signs in July."

Ford, the only U.S. automaker that has not restructured in bankruptcy with federal funding, has consistently outperformed the other six largest automakers in the U.S. market this year, with less severe sales declines than its rivals amid the lowest vehicle sales rate in nearly three decades.

"The beginning of July was firming up for us and then a week ago last Friday the government's 'Cash for Clunkers' program kicked in and there was a substantial increase in business and that kicked us over the top," Czubay said. "We don't know about the others, but we do know that we are going to have an increase year over year."

The "Cash for Clunkers" program took effect on July 24, a week before the end of the July sales period. Automakers will report their July U.S. sales on Monday.

The "Cash for Clunkers" program provides consumers payments of up to $4,500 for the purchase of a new car when an older vehicle is traded in for a more fuel-efficient one. The initial $1 billion of funding could cover 222,000 to nearly 286,000 vehicles.

Ford will also report its first year-over-year retail sales increase since July 2007, supported by sales of more fuel-efficient vehicles, chief sales analyst George Pipas said.

"You are going to see large gains in almost every Ford product that is powered by a four-cylinder engine -- the Focus, the Fusion, Fusion Hybrid, the Escape small utility and its hybrid version, the companion Mercury products -- that is where the demand was, particularly this past week," Pipas said.

July's monthly U.S. seasonally adjusted annualized sales rate is expected to be the strongest of 2009, though weak by historical standards.

Czubay said the annualized rate, a figure economists use, was expected to be "well into" the 10 million unit range.

Automakers sold about 13.2 million light vehicles in the United States in 2008, a sharp decline from more than 16 million sold in 2007, but sales rates plunged further in the first half of 2009 to an annualized rate as low as 9.1 million in February.

"No one is happy with a 10-plus (million unit annual rate), but it's a solid indicator for the economy that we are into the double-digits," Czubay said.

The sales downturn has left Ford burning cash and helped push its rivals General Motors and Chrysler into bankruptcy.

U.S. Transportation Secretary Ray LaHood said on Sunday in an interview with C-SPAN that the initial funding for "Cash for Clunkers" could last through at least Tuesday.

The U.S. House of Representatives has approved an additional $2 billion for the program. The extra funding, which the White House backs, is contingent on backing by the Senate.

Ford shares closed at $8 on Friday.

New York Times

The government’s “cash for clunkers” program gave automakers a desperately needed sales boost in July, though their relief could be short-lived if the Senate does not vote to extend the trade-in program after it ran out of money within days of starting.

The Ford Motor Company said Monday that its United States sales rose 2.3 percent last month, marking the first year-over-year increase for any of the six largest carmakers since last August. Ford had not posted a monthly sales increase in nearly two years. Ford’s compact sedan, the Focus, was the most common selection by people who used the trade-in program, the government said Monday.

General Motors and Chrysler fared better than in recent months but did not benefit from the program as much as Ford, which heavily promoted the government-sponsored rebate program at its dealerships, in television ads and on its Web site. G.M. reported a 19 percent decline in July from a year ago, and Chrysler said sales fell 9 percent.

Honda’s sales fell 17 percent. Volkswagen reported a 0.7 percent increase. Over all, automakers said the new-vehicle selling rate rose in July to its highest level in 11 months. Through the first half of this year, sales were down 35 percent compared to the first half of 2008.

“I challenge anyone to show me a one-week program that has had as much benefit to the consumer and as much impact on the environment as this one has,” George Pipas, Ford’s chief sales analyst, said on a conference call Monday.

Ford said sales of seven of its models rose at least 60 percent last month. It sold 18 percent more cars and crossover vehicles than it did in July 2008, though sales of its trucks and sport utility vehicles fell 18 percent. The company did not say how many of its sales were made to people who turned in a vehicle to be scrapped under the program.

All three Detroit automakers said the flurry of demand in the final week of July left their inventories of unsold vehicles at the lowest levels in many years.

The government trade-in program, which began July 24, lets consumers give up an older, inefficient vehicle and receive a credit of up to $4,500 toward the purchase of a new vehicle with a higher fuel economy rating. Its unexpected popularity caused the program, formally known as the Car Allowance Rebate System, to quickly exhaust its initial budget of $1 billion, which was enough for about 200,000 people to take part.

The House of Representatives voted Friday to provide $2 billion more, and approval from the Senate is needed to extend the program. Many dealers are now unsure whether to continue taking trade-ins under the program, not knowing if the government will reimburse them.

Automakers welcomed the program at a time when high unemployment and low consumer confidence levels have pushed new-vehicle sales to their lowest level since the recession of the early 1980’s. Even if Congress allows the program to end suddenly, officials at G.M. say they are seeing more reasons for optimism in the months ahead, both in the latest economic data and in reports from their dealers.

“Clearly momentum is starting to build for a recovery, and we’re really starting to see car buyers return to the showrooms,” Michael C. DiGiovanni, G.M.’s chief sales analyst, said. “The bankruptcy talk and issues are clearly getting behind us.”

The Transportation Department said Monday afternoon that based on 80,500 cash-for-clunker applications — which officials believe is about a third of the total deals so far — average fuel economy of the new vehicles was 9.6 miles per gallon better than the old ones, 25.4 m.p.g. versus 15.8 m.p.g., an improvement of 60.8 percent. The improvement, the department pointed out, is much larger than the minimum required to be eligible for the government rebate: a gain of four miles per gallon for cars and two miles per gallon for trucks.

Part of the reason for the gain was that some people were turning in old trucks for new cars. So far, 83 percent of the “clunkers” were trucks or S.U.V.’s and 60 percent of the new vehicles were cars, the department said.

The department also said that Ford, G.M. and Chrysler supplied 47 percent of the new vehicles, slightly more than their overall share of the market, which is 45 percent. Four of the top 10 were also made by American companies, the department said. Of the remainder, it said, “preliminary analysis suggests that well over half of these new vehicles were manufactured in the United States.”

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