Clunkers Fail Update: Proof That Americans Do Not Buy Cars (Or Anything Else) With Magic Beans

I've blogged a few times on the epic failure that was the Government's "Cash for Clunkers" (C4C) Program.  Those entries demonstrated that the "successful" Program was, by pretty much every measure available at the time of posting, anything but.  I also noted auto-expert analysis warning that C4C probably wouldn't even boost auto sales, despite passing out tons of free money to do that very thing: "Several auto experts have said that the program will do nothing to improve the long-term health of the auto sector because C4C only pushed new car sales forward a few months (e.g., people buy today instead of in January)."

Last Friday brought evidence of that basic economic reality.  After strong sales during the months in which C4C was active (July-August), Edmunds.com reported on Friday that September sales will be abysmal.  Here's Automotive News reporting on this utterly unsurprising development:

September’s light-vehicle sales rate will fall to 8.8 million units, consumer auto site Edmunds.com said. That would be the lowest rate in nearly 28 years, tying the worst demand on record.

After the cash-for-clunkers program boosted August sales to their first year-over-year increase since October 2007, demand has plunged. In at least the last 33 years, the U.S. seasonally adjusted annual rate has only dropped as low as 8.8 million units once -- in December 1981 -- with records stretching back to January 1976.

Amid a global recession, U.S. sales fell to 13.2 million units in 2008, from 16.2 million in 2007. The slide continued, with demand ranging from 9.1 million to 9.9 million in the first half of this year.

End of clunkers

But the cash-for-clunkers program’s official run from July 24 to Aug. 24 bumped the sales rate to 11.1 million in July and 13.7 million in August.

Now that consumers can’t receive $3,500 to $4,500 for trading in gas guzzlers for new vehicles with better fuel efficiency, they aren’t rushing to purchase vehicles, Edmunds.com analysts said.

“Many people regard February as the darkest month of the recession, but even then the SAAR was higher, at 9.1 million units,” Edmunds.com senior statistician Zhenwei Zhou said in a statement.

The sales rate from Aug. 25 to Aug. 31 fell to 8.3 million, Edmunds.com said. That week’s transactions saw 6.4 percent of transactions carried over from the cash-for-clunkers program, which allowed dealers to submit requests for voucher repayment for cars not yet delivered from the factory.

September swoon

Demand increased to 8.9 million in the first five days of September, with 3.6 percent of sales from cash for clunkers. The rate slipped to 8.7 million from Sept. 6 to Sept. 12, Edmunds.com said, with 3.3 percent of deals leftover from cash for clunkers.

The slide in demand also has lowered the average dealer profit per vehicle, the consumer auto site said. The average was $981 the week leading up to the July 24 launch of cash for clunkers, and that steadily increased to $1,494 the last week of the program. As of last week, average dealer profit had slipped to $1,303 per vehicle.

The lesson: the American people buy cars with their money (borrowed or saved), not magic beans.  And unlike the beans, people's money is finite and runs out (and doesn't sprout beanstalks which lead to a magical cloud-kingdom, but that's a story for another time).  So when people are artificially induced to spend their money early, they won't spend it later. This is why Keynesian stimulus packages like C4C can't work, and it's a simple economic concept that even a lawyer like me can understand.

(Although it was lost on almost all of the lawyers who work on Capitol Hill, of course.)

Now indulge me in a simple hypothetical.  Let's say that the monthly September auto sales rate ends up at 8.8 million units and the next few months have similar rates (say, 9.0 million units, although I'm not sure why they would increase without any Clunkers holdovers or more government meddling).  By my basic math, the dismal "September-December 2009" would mean [(11.1+13.7+8.8+9.0+9.0+9.0)/6=10.1] that the Government's $3 billion "investment" resulted in almost no improvement over that awful pre-Clunkers rate of 9.9 million units, and nothing even remotely close to the below average rate of 13.2 million units in 2008.  So domestic carmakers, dealers and the broader American economy got nothing from C4C, except a bill from the federal government for another few billion bucks and a lot of harmful unintended consequences.

So much for that "success," huh?