Wednesday, September 2, 2009

Government Fail: Autos

Yesterday we detailed Government Fail: Housing (i.e. a $45k cost to taxpayers per marginal home sale). Today, we visit the automobile industry. Calculated Risk, backs into the cost per automobile sale that would otherwise would not have occurred:

First, for autos, if sales in August had been about the same as June (pre-tax credit), there would have been 850 thousand light vehicles sold (NSA). This is about a 9.7 million SAAR.

Next we add in the tax credit: Although the DOT reported close to 700 thousand car sales associated with the Cash-for-Clunkers program, probably about 550 thousand were in August. If these were all additional sales, then the total sales (NSA) for August would be about 1.4 million, or almost 16 million SAAR.

If is correct, and total sales were 1.17 million (NSA) in August, then the tax credit only generated about 320 thousand extra sales. Of course some regular car buyers might have put off a purchase to avoid the rush in August, so this isn't perfect, but instead of costing taxpayers $4,170 per car (as announced by DOT), the cost to taxpayers per additional car sold was close to $7,200.
$7200 per auto. That's some chunk of change to pay for a car that may in many occasion been in running condition, BUT it likely helped American auto manufacturers... right? Well, maybe. BUT, not NEARLY as much as it apparently helped Foreign manufacturers.

Year over Year Change in Auto Sales

Source: Autoblog


  1. Interesting point that you all seem to have missed... the HIGHEST SALES for any US "brand" of car was for Pontiac -- the brand GM is killing off.

    One suspects this is because the brand's cars were being heavily discounted (relative to Chevy & Buick) in order to get rid of the inventory.

    The only other US "brands" that had an increase were Ford (the Ford brand being almost equivalent to Pontiac, and the Mercury brand experience a minor positive).

    But -- and here is what is VERY interesting -- ALL of the other US "brands" (including every other GM or Chrysler product line) experienced a decrease -- even WITH the "Cash for Crap" subsidy!

    (And note especially that, excluding Pontiac, the vast majority of GM product lines -- GMC, Buick, Cadillac, Saturn & Hummer -- were all at the bottom of the list).

    So much for people's confidence in "Government Motors" -- apparently most people would much rather own a Hyndai, Subaru, or Kia than an Obamamobile.

  2. you make good points regarding the relative trends, but the figures are year over year. thus, even though a # of US brands are down year over year, they are much improved month over month

  3. I think the point was to help dealers, not so much automakers. Dealers employ a lot of people and can bring in temp sales and backend labor fast. I'm sure that this is having a significant economic impact for many struggling people in the car retail business.

    It can't have been designed to help the manufacturing sector, they have huge inventory (of mostly huge cars).

  4. or it was just meant to create a false sense of hope that would snowball into a real sense of hope. if enough people believe the jump in Q3 GDP then it will create REAL growth in longer term GDP if enough spenders come back from the sideline.

    i think that:

    a) it won't trick people into thinking there has been a recovery (too easy to get info these days)
    b) people won't be able to spend, even if they have been tricked into thinking there has been a recovery (people are TAPPED out)
    c) i've been wrong before, thus it will be interesting to see how it actually plays out

  5. but where are the cars actually made? they may have foreign marques but are made in the usa...

  6. From the BLS site (which is new to me, I'm a biologist) there are 1.2 million people employed by auto dealers in May '08. In a normal year those 1.2M sell 16.5M cars and make a mean salary of $44k. So each person employed in sales takes $3200 per sale in normal times? Could that really be correct? Or about 14 car sales per employed person per year.

    Lets assume for a moment I can still do math, cross our fingers and continue.

    320,000 excess sales, from your calculation, is 23,000 people not on the unemployment line.

    Is that worth the extra $3k per car? I don't know. When you balance the 23,000 people (or so), the increased fuel efficiency, the decreased drag by glut of unsold cars, the taxes that go to county DMV, etc. I think its not so bad.

  7. you state:

    "320,000 excess sales, from your calculation, is 23,000 people not on the unemployment line."

    but those 32,000 sales are in a two month time frame. if sales revert back to the lower trend, then they will not be gainfully employed a month from now. the unemmployment was just put off for two months during the cash for clunkers program.