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The Hangover

October 1st, 2009

I heard a story on NPR today about what auto dealers are calling the Cash For Clunkers Hangover.  September, it seems, was a dismal month for auto sales, primarily due to the fact that so many cars were sold in late July and August due to the CARS program.  The two reasons cited are that people purchased new vehicles earlier than they otherwise would have to take advantage of the incentives, and dealer inventory was quite sparse in the post-CARS weeks.

Is this really a story, though? I wrote about CARS prior to the program here, and midway through it here, and stated that CARS had such an explosive effect due to pent-up demand (i.e., people delayed their vehicle purchase due to the economic downturn).  CARS was intended to counteract this delay by accelerating vehicle purchases – essentially compressing time for the auto industry.  Unfortunately, the program was a victim of its own success and was thus short-lived.  So, is it any wonder that sales slacked off after the incentives ran out?  Not to criticize NPR (one of my favorite news sources), but isn’t this story akin to headlines like “Fans Celebrate After Team Victory?”

CARS HangoverOne good point that was made in the story, though, was that perhaps the incentives were too high, and thus too large a market distortion.  Maybe if the incentives had been only $1000 or $2000, instead of typically $3500 or $4500, auto sales would have been stimulated for a longer duration (though to a lesser degree).  …Then maybe the hangover wouldn’t have been so bad for the dealers.

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