Saturday, October 3, 2009

What Did People Expect?

The headline for an article in yesterday's Wall Street Journal is "Cruel September for Car Makers." Car sales fell 23% in September. But in the preceeding couple of months, the government's "Cash for Clunkers" program was in effect. The auto industry had used incentives in the past to boost sales, and usually found that the boost in sales came at the cost of sales in other months. The government's program was the same type of thing. The big question is whether it generated a net increase in car sales or merely changed the timing of the sales. Given it included a sizeable subsidy for new car buyers who had a "clunker" and bought a more fuel-efficient car, it is likely it stimulated demand from what it would have been rather than merely transfer sales from the end of the year to the late summer months. But it is hard to see a reason to expect improved sales for the rest of the year.

It is interesting to see that Ford continues to increase market share while GM and Chrysler are losing market share. Ford is the firm that did not get direct aid from the federal government and now faces competition from government-aided firms, yet is gaining market share at their expense. Apparently, producing cars people want matters more than government support.

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