Were the Skeptics Right About Cash for Clunkers?

Ford better hope not--it's preparing to churn out hundreds of thousands of extra cars.

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Call it what you will--CARS (Car Allowance Rebate System), Cash-for-Clunkers, C4C or simply a "stupid waste of money"--the government program that was supposed to unleash consumer spending "worked"--but only at the expense of the overall economy. That's the message today in response to disappointing news that retail sales are down. Automakers were the only industry to see a boost, and  skeptics see this as vindication of the theory that giving away rebates would puncture and distort pent-up demand.

Ford, meanwhile, is gearing up to spit out hundreds of thousands of new vehicles. Were pundits who eventually came around to liking cash-for-clunkers, as we reported last week, really so wrong?

Here are the best arguments for parsing the automakers' roles in the retail slide:

  • Carmakers Snatched Sales from Other Sectors, says Michael Gregory as reported in BusinessWeek. "Cash for Clunkers pried open consumer wallets a bit, but at the expense of spending on other items."
  • But That's Not the Whole Story, says David Greenlaw of Morgan Stanley at the Wall Street Journal. "it's important to keep in mind that the vast majority of vehicle purchases are financed or leased."
  • Car Demand Is Already Deflating, says Joshua Shapiro of MFR as reported at the Wall Street Journal. "Reports from auto dealers indicate that interest in the program is fading, which suggests that much of the incremental activity that it generated was borrowed from the future. Hardly the stuff of a sustained rebound in consumer spending."
  • But Give It Time, says Stanley Bing at Fortune. "The cash-for-clunkers thing didn't start until the middle of July, though. Maybe August will be better."
This article is from the archive of our partner The Wire.