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Biggest Beneficiary Of Cash For Clunkers To Cut Capacity By 10%
In a stark example of how it "should" be done, the recently terminated cash for clunkers subsidy for overleveraged US consumer to purchase Japanese cars, has allowed companies such as Toyota, Honda and Hyundai to push forward a significant amount of their sales, while relying less on the back end of their production curve. Indeed, as Detroit News recently reported, of the five major beneficiaries of Cash for Clunkers, 4 were Japanese cars, with Toyota representing 19.2% of all cars sold under the program. And now that they got their sales out of the door, they are winding down capacity.
Here were the top five models sold into CfC:
- Toyota Corolla
- Honda Civic
- Ford Focus
- Toyota Camry
- Hyundai Elantra
So while Obama's ulterior motive to lever US consumers even more may or may not have worked (these are merely purchases that would have occurred eventually, and instead the US middle class will have more lease payments to look forward to in the interim), the practical reality of CfC has been a nice stimulus package to none other than Japan. This probably explains why they have not been screaming bloody WTO murder.
Hot on the heels of this, Toyota today announced it would be cutting global plant production by 10%. According to MarketWatch:
Toyota plans to cut its global capacity production by 10%, or by 1 million vehicles, as early as this fiscal year, Nikkei reported on its online edition Tuesday in a story dated for Wednesday. Production volume, which peaked at 9.5 million vehicles in 2007, is expected to fall to about 6.7 million vehicles in 2009, according to Nikkei. Toyota currently has a production capacity of 10 million vehicles a year.
In the meantime, bankrupt dinosaurs such as GM are ramping up production, precisely in a time when there will be increasingly less demand (absent another CfC program of course, and a couple extra billion that would have to be tacked on to the next bond sale).
Next up on Ron Bloom's docket: cash for hairdryers and plasma TVs. And guess who benefits? Why, those who make them of course. US consumers merely end up footing the bill. At a 19.99% ARP.
h/t Aditya
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The issue is: When will GM file the second coming bankruptcy petition? Now that no lenders dare to loan the GM.
lenders? HA!!!
you and i are their lenders and we've lent by gunpoint!
Why would they need lenders when they have the Gov piggy bank (the Fed)?
Cash for 'Perfect Condition' rebate of 15,000 USD (or equivalent to 2000 Mexican Pesos by then)
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Hey Tyler, it'd be real nice if 'flagged as junk' could 'fade' text down so it's not as noticeable. Nice also as a reward/reinforcement for those of us that hit the junk button when we need to.
Thanks!
Had they just liquidated Chrysler and GM the auto market would be properly stabilizing at a decent supply/demand level. Sure, some suppliers would have needed emergency loans, and some would go under, but it's preferable to the massive overcapacity that still exists, and will continue to exist.
Stupid keynesians.
Cash For Refrigerators. No--really.
http://www.reuters.com/article/mnEnergy/idUS225779891520090825
These are unintended consequences, as much as I hate using that phrase. Reminds me of a government subsidy program a few years back whose ultimate purpose was energy conservation. You got a government rebate to upgrade your old, energy inefficient, refrigerator to a more efficient one. Of course, what most people did, was buy a new fridge for the kitchen using the rebate, and moved the old clunker into the basement (or garage) to serve as a beer fridge. Net effect of the program: increased energy use...
Why does it remind you of that program? Were you smoking crack back then, too?
The issue you brought up was exactly the reason why the program required disabling the engines of the fuel-inefficient cars being traded in. All the libertarian finance types on sites like this cried foul because CfC was "destroying value" when they disabled engines, but it was an intentional move to prevent exactly your beer fridge scenario .. fuel-inefficient cars simply being resold to some other driver.
I live in Seattle, and here we have a refrigerator upgrade program, and they take the old fridge when you upgrade. It's not that hard to design a system that stimulates economic activity, and saves energy.
Both ideas are stupid.
I agree...
I think you are missing the point; or perhaps I was not clear. The reason for the CfC program was, first and foremost, to stimulate job creation in the auto industry -- or, at the very least, stem the massive layoffs. However, having gotten rid of their huge inventory because of the program, the car manufacturers are now laying off workers because they understand that demand for cars will not pick-up anytime soon.
I thought that was clear in the first post. Given that you live in Seattle, I now understand why you were confused...
"cash for hairdryers"
I know, it sounds great in theory. How can this possibly be a poor plan? Had to read this myself to believe it, sadly...
http://www.nowhampshire.com/2009/08/24/bedford-beauty-school-received-stimulus-funds/
A NowHampshire.com investigation reveals almost $37,000 of that money went to a Bedford beauty school that does not grant degrees.
The Office of Economic Stimulus granted Coiffures by Michael, Inc. $35,088 in a “direct payment for specified use,” and another $1,571 in “student financial assistance.”
Coiffures by Michael runs Michael’s School of Hair Design and Esthetics. The school promises “no learner is left behind.” Guest speakers at the school include Dean Banowetz, the self-proclaimed “Hair Ho.”
This is the first post I've had a problem w/ at ZH, and it would be nice to know which Tyler Durden wrote this, time to split the split personality I think.
How many of these cars were made in the US? What percentagoe of Toyotas Hondas Fords are made here. That's an importnat number to factor in. And while I'm sure CfC did speed up the speed at which people purchased cars it's not the whole story. Some people bought cars who hadn't thought of it,. I know 3. I'm not arguing that it's 50/50 just more than the 0% you seem to assume.
Not a fan of this Durden.
And you believe what the US needs right now is consumers to lever up some more? And you think because the car is made in America that it isn't ironic that the parent is in Japan?
Either way the point is that you can't really alter demand. Toyota knows the demand will now drop off.
where in this article does it say 0%?
no sh1t you aren't arguing 50/50 because that would be openly admitting you are a complete fool.
There are others amongst you who are also not a fan:
-politicans who need something else to do besides blame their predecessors.
-people who received the 4500 dollar credit UNTIL they found out that it was in fact taxable.
-dealers who saw a sales spike UNTIL they realized that by the time they received their money that we would be in the next recession (around 2015).
...you don't like this article why again? please use clearer language to describe the possible assumptions that are made errouneously in your opinion.
you actually make a good point; Toyota', Honda' and KIA' have more parts manufactured in the US than Chrysler or GM + all the factories which assemble the cars are in the US. ( google the issue to find the exact numbers )
Yes, but that point was so far off the mark in regards to the topic (which had nothing to do with which country manufactures what). The tone certainly didn't help.
i know, i just said he makes a good point; regardless of being off topic.
bankrupt dinosaurs such as GM are ramping up production
------
of course they are. soon under 10-289 part b.2 you will only be able to buy GM or Chrysler products
carry on
Other points:
- The $4500 rebate is taxable
- Most vehicles were sold at MSRP (if people had the cash without the program, they would've squeezed $4500 out of the dealers)
- All "clunkers" are completely junked (not recycled in any manner)...total greenwashing.
...and we destroyed what were in most cases, completely productive assets. All in exchange for more debt. This makes us better off how, exactly?
and the irony of CfC is that like 80% of both the people and the dealers had no clue that the amount </= 4500$ will be taxed. read the article by Denninger on that; he nailed it ( rant included )
CB -
Thanks for that reference - good catch.
From the reading I have done, CfC is taxable for state sales tax differentials and possibly for state income taxes. How would any state have a tax ID number from a car sale, though? And no Federal tax.
Is that your understanding as well?
my understanding is that sales tax was assessed on the vehicle price before the $4500 credit so that states could maintain their revenue....in a state like mine (NY) that is about 8%
Denninger actually explained it pretty good. Check it out, http://market-ticker.org/archives/1371-Government-And-Car-Dealers-Hose-You-Again.html
I guess the sheeple aint as dumb as they seem. Even dumbasses know that japanese cars dont dissolve in the rain as fast as american junk.
Clusterstock has a blurb about how the rebates are likely to be taxed. Buyers will face sales tax and possibly income tax on the $4,500. And people are only finding out about this now! The insanity goes on!
Yeah, lets put these people in charge of our healthcare.
cash 4 clunkers was not meant to be
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Guess the Toyota announcement means the end of the NUMI plant in Fremont, California, the only UAW facility Toyota has. Not much is going right in California these days and this will be just one more nail in their economic coffin.
campaign is a red herring. An audit won't change a thing. The public outrage would be better directed towards
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Why a "a nice stimulus package to none other than Japan"? The Corolla, Civic and Elantra are all more than 50% North American in content with final assembly in North America for the US market. They are no less American than is the Ford Focus.
well, at least one of the people at the table (toyota) is smart enough to realize that demand is about to taper off after the spectacled 'stimulation.' good for them. silly politicians.
On another, separate note: politicians talking about how 'successful' this program has been. They mean to imply that it is successful at stimulating the economy, but really they're going to have to pay for it later. Congratulations! You've 'successfully' given away free money. It only took us 200+ years to figure out that winning formula.
I purchased a new Honda Accord about a month before CfC in Northern Virginia. I talked them down from a $24,500 MSRP to $19,800. I talked to the saleswoman during the intial CfC week and she said they weren't going lower than $22,500 on those same Accords, if the person even talked them down. So poor folks could have had the car for $19,800 in the weeks before the program or they could pay $22,500+ with the pgoram, if they even negotiated that low (which is probably not the case for alot of folks). Net difference is around $1,800 savings max - big freakin deal.
now we can watch them default on their car loans.
Remember, under Ca$h 4 Clunkerz you also get zilch for the trade in. So tack another couple thousand onto the out-of-pocket expenses.
Toyota's had a decade of watching stimulus spectacles so they know what to do when they end. GM's plan is to become a permanent ward of the state. As has been pointed out nobody is going to lend to them other than the gubmint. Moreover you'll be seeing more cash for clunkers as the "anticipated demand" does not appear, moving more demand forward, followed by another cash for clunkers, rinse repeat...
We borrowed money from China.....
To buy cars we otherwise couldn't afford.......
And sent the profits back to Japan.....
And tagged our kids with the responsibility of paying back the loans with interest....
So we could drive to Wal-Mart and buy things made in China by 13 year-old girls working 6 days a week for $0.28 per hour.
It all makes perfect sense in the New American Economy!!!!
The thing I love the most about bringing forward demand to satiate now is the part where we get to the future and find that the demand that was supposed to be there is now in the past.
It's also great to kill off the engines with acid so that they can't be recycled and used to improve the performance of old cars that owners choose NOT to scrap, killing off a vital cash-flow for many wreckers in the process.
Next part I love is the green claim. Don't have the numbers handy but I bet if you sit down and calculate the embodied energy of constructing an entirely new car plus the 'decommissioning cost' of the old car (melt & recast), then I suspect that energy savings from greater fuel efficiency fail to add up to emergy costs. (That's not a typo: http://en.wikipedia.org/wiki/Embodied_energy)
Anyone got any numbers to refute / support? My quick googling didn't turn up anything useful regarding emergy calculations for cars. I have numbers for building materials and metals, but calculating based on metal / glass / plastic content alone massively understates emergy due to the complexity involved in assembling complicated components.
I think in the final analysis it is simply an effort to placate and keep employed UAW workers without whom the Dems have no chance of maintaining their majority status, much less re-election.
Of course I forgot to mention in order to pull more demand forward the size of the rebate/government gift will need to increase thus making them even more idiotic. Consequently look for the $8K housing stimulus check/$4500 CFC to double or triple over the coming years.
3 years from now, we get the Cash for 'Perfect Condition' Clunkers rebate of 15,000 USD (or equivalent to 2000 Mexican Pesos by then)
The thing I love the most about bringing forward demand to satiate now is the part where we get to the future and find that the demand that was supposed to be there is now in the past.
That's not just the story of cash for clunkers, but of the U.S. economy. The autos and furniture that aren't being sold now were bought with borrowed money in the last 5 years.
On the enviromental impact of cash for clunkers, it would be difficult to calculate the exact impact because the old vehicles would have been scrapped and replaced with new cars at some point. The net environmental impact would only be the cost of pulling that process forward by two or three years netted against less pollution due to higher gas mileage and lower emissions from the new vehicles.
Exactly. Madoff had nothing on the United States of Ponzi. Not just the USA of course, but all countries that have succumbed to the Central Banking System. We run out in the present so we steal from the future, which is all well and good until Physics bites us on the ass with a limit or two.
Valid point regarding c4c. Taken.
A month before CfC I negotiated 10 grand off or about 23% on a new Lincoln DMX for my folks.
The week CfC started a buddy had me negotiate for his mother on a Honda CRV, Three different stops and 7.5% was the best we could do.
Neither had trade-ins.
I told my friend we should wait but his Mother wanted it now.
Point is once CFC started you couldn't negotiate squat. All those that bought really saved nothing and lost the tax saving on their $1000 dollar beater.
More proof most in this society are economically illiterate.
Yes, most americans are math illiterate.
Go to a walmart store near you. Find a bottle, say, vitamin with 50 tablets at a cost of 5.99. then go find the same vitamin same dosage with 200 tablets and you might note the cost is marked at 26.99. Yes, most americans will buy that 200 tablets instead of 4 bottles of 50 tablets, figuring that the larger the size, the cheaper the tablet.
Same story in the target store near you. Don't believe me. Go find out yourself. Either the staff in the walmart or target is math illiterate or it is intended to rip off the math illiterate americans.
Same story in the target store near you. Don't believe me. Go find out yourself. Either the staff in the walmart or target is math illiterate or it is intended to rip off the math illiterate Americans.
Haven't spent a great deal of time at either store (target doesn't exisit in my country). But going to go out on a limb here and guess the BOTH staff and customers of Target and Walmart are math, finance and economic illiterates. Exactly the way the top 5% like it.
I suspect 25% of Americans are hard core Conservatives like myself. I, as a Conservative will never purchase and auto from Obumbler Motor's. My guess is most of us 25 per-centers feel the same way.
It will be interesting to watch GM and Chrysler explained there lost market share.
Great. Someone who doesn't know ther difference between "their" and "there" is the poster boy for the Conservative movement in America. Who says Sarah Palin can't win the White House?
This is a seriously flawed piece, beneath the normal standards of ZH. As others have pointed out, many Toyotas and Hondas are built in the U.S., and they are not just assembled here. Their major parts suppliers also have plants here where they build the parts.
In addition, there is a reference to Toyota cutting global capacity while GM is increasing production. GM has already cut a lot of capacity by closing excess plants. Toyota has never closed a plant that I'm aware of, but now because of a collapse in global auto demand they find themselves with 10 million units of capacity versus current (ex cash for clunkers) demand of around 6.5 million units (versus about 9.5 million pre-Lehman collapse). Given that Toyota management thinks and plans in terms of decades, if they're going to eliminate 1 million units of capacity it means they don't believe global auto demand will return to 2007 levels for many years; otherwise they'd keep the capacity in place and absorb the negative P&L impact for two or three years.
GM is not the only auto company that will boost production. Honda recently announced that it would boost production and I'd guess most others will in the next few weeks. The reason they're boosting production is that while demand collapsed 35-40%, they cut production by 50-70% to work down their enormous inventories. I'm sure many ZH readers have saw the pictures in Q1 of this year of new Toyotas and Hondas sitting in parking lots near the Long Beach and Los Angeles ports. But at some point, if you produce below demand your inventories will get back in line and you lift production back up to the level of ongoing demand. This is the one-time inventory "green shoot" that will quickly fade away once production is in line with the current puny level of demand.
The Dems are toast with or without additional CfC. I hope they do pass Obamacare and Cap and Trade (without Republican support). What did Lenin say? Capitalists will sell you the rope you use to hang them? Same with the Dems. Let them implement all of their pet plans and see what happens when it all comes crashing down (actually, they will probably blame Bush)
I should add that I agree with ZH and most others here that "Cash for Clunkers" was an incredibly stupid and wasteful program that did nothing more than pull future sales forward.
Man, we need to save our political campaign donors of fine auto makers and fine auto dealers with the plan of OPM, namely C for c (must be totally destroyed to reduce supply and to make UAW happy) under the impression of free cash while simultaneously screwing up the math and economic illiterate j6P.
You see it is a smart plan for politicians and automakers/dealers. As for J6P, Man, who cares. Remember, we are not in the business of serving voters, we are in the business of serving donors.
Yours truly,
signed, your congressman hard(ly) at work
Allow a stronger , but combine this policy with lower tax rates for the middle/lower class and higher rates
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Talk to me in a few weeks when there are thousands of dealers ready to fold because they find out only 50% of their deals will be funded. There is also a serious battle brewing between the Dealers and the customers. Here is one of the many examples of future headlines. " THE CLASH OVER THE CLUNKER".
Some auto dealers are pressing consumers to sign agreements requiring them to pay back to the dealer the rebate of up to $4,500 -- or return the new car -- if the government doesn't approve the customer's clunker exchange.
But some say consumers shouldn't be on the hook to come up with the cash.
"You go in, you trade in your car and you think you're getting in on the cash-for-clunkers deal. But then the dealer tells you, 'Oops, it didn't go through. We need the money or the car back,'" said Rosemary Shahan, president of Citizens for Auto Reliability and Safety, or CARS, a California-based advocacy group.
"To be fair to the dealers, it's a new program, it's complicated. There are probably dealers who have made a lot of honest mistakes," she said. "The question is: Who should pay for that? We're concerned consumers are being pressured to come up with money that they really don't have."
How many of these deals do you think are out there?
Does anyone bother to read history anymore? Go look at our handling of the Great Depression, and see if you still think it would be a good idea to enact protectionist policies right now.
Not to mention the fact that our debt is much more in the hands of foreigners, like the Japanese, than it was in the 1930s, making it even more important not to resort to protectionism.
Furthermore, many "Japanese" cars are made in North America now, so while profits may head back to Japan, it still provides work for local factories.
American cars didn't win in Cash for Clunkers, because
End of story.
Look into the depression a little further than what the globalization crowd is telling you and you would see that America would benefit from enacting a few tariffs and other protectionist policies. I am sick of the double standard that the WTO gives to "developing countries". When is China officially considered devoloped? Once they buy America? Enacting tariffs and protectionist measures or stopping the unfair policies of the WTO is the only possible solution that I see to get America back on it's feet.
Regarding CFC. WTF was this fuel efficiency crap anyways. This program was made to generate a few months of good economic reports and reduce the glut of cars that manufacturers had. Then they decide to package it up like it is some environmentally friendly government program by forcing fuel efficiency standards.
They should have helped the big three out and called the program Benny's fo Buses. Everyone could have rushed out and got themselves an Escalade.
The good news: since the C4C 'bonus' is taxable, the whole program may only cost $2B instead of $3B.
The bad news: congress itself didn't realize the 'bonus' was taxable and are now itching to spend their $1B windfall.
Some Civics, Corollas and Camrys are made in the US or Canda. Without doubt most of the cars sold were made in North America. I am not here to defend CfC, just saying.
A simple plan was designed to fix a complex problem. This is how politics works. Even in totalitarian states.
On the large scorecard of government/central bank actions this program is barely visible. Certainly it is doomed to generate far more rhetorical heat than it size deserves.
Japanese government is seriously concerning about the implementation of Cash for Crackhead program.
It's possible that US government intentionally delay the reimbursement for those dealers that are selling Japanese vehicles so thaty those dealers can't purchase new inventories.
Yep, it's all about protectionism. sigh.
Taro ASSo
My wife works for Toyota Financial Services. They are begging her to work Saturday and SUNDAY.
WooHoo. OT green shoots
Is Ford now commenting on their stock price?
Ford (F) says end of sales support will "take us back down"
http://ransquawk.com/articles/18792