The program, which gives customers refunds of either $3,500 or $4,500 for trading in their cars for more fuel efficient models, has run out of the originally allotted $1 Billion, which was originally anticipated to last up until Nov. 1st or until the money ran out. Now that the program is out of money, much quicker than expected, the question of whether to extend it looms.
The program has proven successful in boosting auto sales. Ford has posted sales increases of 2.4 percent from last July, its first year to year increase since 2007. Other automakers have claimed sales increases as well, including Chrysler and GM. It would appear that the $1 Billion dollar program has proven itself more successful for the recovery of the auto industry than the tens of billions of dollars spent on the auto bailouts and we didn't even have to take over any companies.
The question of the program's future is not so much one of its immediate success, but a matter of cost and its long term success. Senator McConnell (R-Kentucky), the GOP leader, was quoted as saying, "It ran out of money in a week, prompting the House to rush a $2 billion extension before anybody even had time to figure out what happened to the first billion." While the program has had great success, the argument to wait and see its long term results is not necessarily a bad idea. While the boost in auto sales has been tremendously beneficial to the auto industry, what does this mean for the banks responsible for all of the loans being given for the purchase of new cars? Perhaps it would be wise to wait and see how the massive amount of car purchases affects the nation's economy outside of the auto industry. I'm sure you will all recall the reverberating effects of the housing crisis and its impact on the nation's economy.
Sources:
NY Times - 8/3/09
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This reminds me of the Mitsubishi 0 down 0 interest 0 payments for one year deal they had in 2000. Mitsubishi had more expensive cars than their competition, because their engines were superior. Americans rarely cared about the contents under the hood, and cared more about cup holders, a/c, and a number of more frivolous things. Mitsubishi thought the public would learn to appreciate engineering, rather than beverage capacity after driving their Lancers and EVOs around. After the year was up all was the same as the status quo, but the consumers were being hit with a with a $700 a month bill. No one could afford it, consumers were out raged, cars were returned, Mitsubishi was sued, and it had tons of 1 year old used cars.
ReplyDeleteI think the idea is a good one, but lets see if in a years time there are rapid auto loan defaults, causing yet another credit crisis.