Thursday, October 29, 2009

Add Edmunds to President Nixon’s Obama’s Enemies List   [Greg Pollowitz]

CNN:

NEW YORK (CNNMoney.com) — A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site Edmunds.com.

Still, auto sales contributed heavily to the economy's expansion in the third quarter, adding 1.7 percentage points to the nation's gross domestic product growth.

The Cash for Clunkers program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.

The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com. That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales.

And the White House response on the WhiteHouse.gov blog:

Busy Covering Car Sales on Mars, Edmunds.com Gets It Wrong (Again) on Cash for Clunkers

Posted by Macon Phillips on October 29, 2009 at 12:20 PM EDT

On the same day that we found out that motor vehicle output added 1.7% to economic growth in the third quarter – the largest contribution to quarterly growth in over a decade – Edmunds.com has released a faulty analysis suggesting that the Cash for Clunkers program had no meaningful impact on our economy or on overall auto sales. This is the latest of several critical “analyses” of the Cash for Clunkers program from Edmunds.com, which appear designed to grab headlines and get coverage on cable TV. Like many of their previous attempts, this latest claim doesn’t withstand even basic scrutiny.

The Edmunds analysis is based on two implausible assumptions:

1. The Edmunds’ analysis rests on the assumption that the market for cars that didn’t qualify for Cash for Clunkers was completely unaffected by this program.

In other words, all the other cars were being sold on Mars, while the rest of the country was caught up in the excitement of the Cash for Clunkers program.  This analysis ignores not only the price impacts that a program like Cash for Clunkers has on the rest of the vehicle market, but the reports from across the country that people were drawn into dealerships by the Cash for Clunkers program and ended up buying cars even though their old car was not eligible for the program. 

This faulty assumption leads Edmunds to a conclusion that is at odds with many independent analyses: Edmunds assumption that more than 80% of the payback from Cash for Clunkers would occur in 2009 isn't how many mainstream analyses, including Moody's and IHS Global Insight approach the problem (see pages 5 and 15 of this CEA report [PDF]). In fact, Deutsche Bank recently concluded that “The important takeaway from recent sales trends is that it suggests that there has been minimal 'payback' for the U.S. government’s 'cash for clunkers' program.”

2. Edmunds also ignores the beneficial impact that the program will have on 4th Quarter GDP because automakers have ramped up their production to rebuild their depleted inventories.

Major automakers including GM, Ford, Honda and Chrysler all increased their production through the end of the year as a result of this program, which will help boost growth beyond the third quarter. The actions of private market participants, who would not increase production if they didn’t think demand for their product would be there through the end of the year, is a far better indicator of market dynamics – and one that Edmunds.com conveniently ignores.

Most importantly, this program is helping boost our economy and create jobs now when we need it most. In a comprehensive report, the Council of Economic Advisers estimated that the Cash for Clunkers will create 70,000 jobs in the second half of 2009. The strength of recent auto sales data suggest that, if anything, this projection underestimates the actual impact of the program. CEA’s analysis is transparent and comprehensive, laying out all of its assumptions for the public to understand. Edmunds.com, on the other hand, is promoting a bombastic press release without any public access to their underlying analysis.

So put on your space suit and compare the two approaches yourself:

OK. I'll go to page 5 of the White House's CEA report.  Here's what it says:

We are not aware of any explicit analysis by the automakers of the proportion of sales that will not be swiftly paid back. But, according to an August 28 interview with the Associated Press, Ford Motor Company President of the Americas Mark Fields "estimated about 30 percent to 40 percent of its clunkers sales were ‘truly incremental,’ meaning that they came from consumers who had no plans previously to buy a car. The rest, he said, came from people who were going to buy a car later on."8 Moody’s Investors Service is even more optimistic, estimating "that about 60 percent of the vehicles sold with clunker rebates were purchased by consumers who were not otherwise intending to buy," according to the Wall Street Journal.9 General Motors appears to have a similar view: a September 1, 2009 story in BusinessWeek quoted Michael DiGiovanni, GM’s executive director of global market and industry analysis, as estimating that only "about 200,000 of the 700,000 cars sold under the clunkers program were pulled ahead from future months."10

So, Edmunds says 125,000 cars were incremental. Ford says about 245,000. And GM says the number is 500,000. Since GM has no credibility in my opinion, why don't we just go with Ford's estimate? This would basically halve the Edmunds number, resulting in a cost per clunker of $12,000. Still bad.

And either way, why not jut say "we don't agree," point readers to your studies, and let it go? What's with the juvenile spaceman nonsense?

10/29 07:30 PMShare