Uncle Sam came up with a relatively novel way to boost consumer spending: offer customers $4,500 to buy a new car (oh, and there’s some environmental benefit as well, as they’ll take your old gas guzzler off your hands.) Hey, when you own two car companies, you gotta do whatever it takes to get people through the doors, right?
So go figure, seems even cash-strapped consumers understand the value of a free dollar. A feeding frenzy ensued, and it deemed a “runaway” success. The auto makers certainly liked it. GM, specifically citing the program, this past week added shifts at two plants to meet the surging demand.
It even tipped industrial production in July into its first increase this year, and production being a key component of economic growth, that was one more data point seized upon by the optimists as a sign the recession was over.
But not everybody loves the program.
Dealers aren’t so happy. Apparently, the rebates owed some dealers are getting lost in the red tape. Transportation Secretary Ray LaHood tried to reassure auto dealers they’d be getting their money before the program ended, which now looks to be around the end of September.
Some dealers, though, hate the program so much they’re coming up with their own exit strategy: they’re dropping it. About 200 auto dealers in New York are so frustrated with the bureaucracy of the program, they’re just not going to participate.
“It’s an administrative nightmare,” NY auto association president Mark Schienberg told the New York Post. Across the nation, dealers have gotten only about 2% of the money they’re owed.
And, it seems, the program had one other unintended consequence: it drew consumer spending away from other things. Even in Germany, where the plan was first hatched, increased money going to autos has taken away cash from other areas, with the net effect to the economy likely to be – ready? ready? – zero.
Once the program ends here, if the government doesn’t extend it, we’ll see how much actual “pent-up” demand there is out there, and how much of the demand we’ve seen lately was just ginned up. We’ll see what happens to industrial production. And we’re already praying for those workers GM recalled back to the assembly lines, to meet the “sudden” demand.
Citigroup’s Steven Wieting is sanguine about what comes next, saying auto sales had bottomed before the program went into effect and production reflects that level.
We’re willing to entertain that notion, and we hope he’s right. But we wouldn’t bet on it.