Discover the Financial Principles of the Bible

Strong Vehicle Sales in August Could Be Bad For the Economy

U.S. vehicle sales spiked during the month of August as buyers rushed to take advantage of the government’s cash-for-clunkers program. The seasonally adjusted annual rate (SAAR) came in at 14.09 million vehicles. That is the highest it’s been since May 2008 and was a 25% increase over July’s 11.24 million.

Auto manufacturers certainly welcomed the apparent return of consumer demand for their vehicles. Ford Motors reported a 17% y/y increase in vehicle sales. Most of the foreign car makers also posted impressive jumps in vehicle sales. Unfortunately, General Motors and Chrysler still saw declines in their vehicle sales, although the declines weren’t nearly as bad as some of the previous months have been.

While it’s great that American consumers have been able to take advantage of the government’s cash-for-clunkers program, the heralded program may actually end up doing more harm to the economy than help.

Most economists and financial experts already agree that August vehicle sales were an anomaly. Looking at the chart below it’s quite obvious that those numbers have been artificially inflated since these deviate so significantly from the real trend.
 

SAAR

So one of the main concerns is that consumers that would have purchased vehicles in the coming months, instead purchased during August to take advantage of the clunkers rebate program. This would mean that not only will the next few months return to their pre-clunker level, but it may actually drop below those low levels. This is because many consumers who would have bought in September or October have already bought a new vehicle. Therefore, we think it’s likely that vehicle sales will return to below 10 million for the remainder of 2009.

“Surely every man walketh in a vain shew: surely they are disquieted in vain: he heapeth up riches, and knoweth not who shall gather them.” Psalms 39:6.

Another potentially negative outcome of the cash-for-clunkers program is that it likely raised the household debt levels of hundreds of thousands of consumers. Edmunds.com has already reported that auto dealers raised prices on vehicles during the month of August as buyer demand escalated. Some consumers may have even paid more during August than they would have in earlier months for the same vehicle.

Even consumers that received great deals on their new vehicles are likely now deeper in debt than they were a few weeks ago. Few people have the means to pay cash for a brand new vehicle even with a $4,500 rebate from the government. No doubt some may have even taken on more debt than they can handle. Others will be forced to cut back on future purchases because of their new car payment.

“The soul of the sluggard desireth, and hath nothing: but the soul of the diligent shall be made fat.” Proverbs 13:4

Filed in: Debt & Credit, Economics, Family Finance, Stewardship

Comments are closed.