Cash for Clunkers Hangover

In unsurprising news for anyone who understands the history of government intervention in the economy, the NY Times reports auto sales fall back as clunker program ends:

Strange that the rapid drop in auto sales isn’t getting the same coverage that the artificial rise in sales, prompted by the “cash for clunkers” program, received. The hangover the auto industry is experiencing now is just a microcosm of the hangover our country will experience in the not-too-distant future.

The good news for automakers is that the market is no longer deteriorating, though it is not improving very quickly. Also, the clunkers program cleared out inventories at many dealerships, leading G.M., Ford and other manufacturers to increase production at some plants and call back thousands of laid-off workers to their assembly lines. The depleted stocks hindered sales at many dealers in September but left the automakers in a better position to compete and make profitable sales in the months ahead.

“Where we are at now is pretty much where we were before clunkers,” said Jesse Toprak, the vice president of industry trends and insights at TrueCar.com, a Web site that tracks automotive sales and pricing. “We hit the bottom — now we can safely say because it’s been a while — back in February. But now we’re struggling to jump-start the industry.”

Automakers have made a huge mistake in thinking that the temporary prop in sales provided by the taxpayer signifies a more permanent change in demand. What the auto industry in America really needs is some tough love from the government, which means no more stimulus programs. While this plan of action would be painful in the short-run, it is the only way our car manufacturers will be incentivized to compete globally. Unfortunately, the chances the government will stop intervening in the economy is close to zero, which means some kind of currency or bond crisis is a foregone conclusion.