Alert student Reni had a good post that a friend was already having second thoughts on her new car purchase, well sure enough, read on....interest in cars is already falling off given the number of Edmunds searches so we can expect car sales to shortly fall off, so as students in class have speculated,
this program just robbed future sales for today, what will they do next quarter?
Indeed, just have a look-see at what is about to happen now that the government's Cash-for-Clunkers blowout is finally over; the USA Today cites an Edmunds.com study which shows that half as many people are researching a new car purchase on its website compared to the peak levels during the cash-for-clunkers survey. Apparently, traffic is off 10% from depressed June levels, when the subsidy program was barely a concept. Will the government reinstate the program when auto sales collapse in the fourth quarter? Can it possibly justify more than the $3 billion in taxpayer money that has already been committed to supporting auto consumption? This is what Mr. Market may not see just yet — a 2002Q4 style of GDP growth relapse in the final three months of the year.
What is interesting is that a CNW Research poll found that nearly 1 in 4 Cash-for-Clunkers beneficiaries now regret making the decision to buy a new car they had no intention of purchasing just yet — because now they are faced with a huge financial bill to pay. Think about it, nearly 700,000 sales with an average amount to finance of nearly $16,000 means that the government induced the household sector to take on more than $11 billion of new debt. It was an overextended consumer that got us into this financial mess to begin with, and now Uncle Sam just induced the household sector to expand its balance sheet by $11 billion instead of doing the prudent thing, even if at the expense of auto consumption over the near-term, and providing lessons on how to live within our means. This is all rather unbelievable, and the price we will now pay for an illusory positive print on third quarter GDP will be stagnation over the next several quarters.
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