Well, it now appears that GM may have been a little hasty when they decided to add jobs and ramp up production August. In a recent report, it would appear that GM and Chrysler sales have plummeted since the Cash for Clunkers program ended, with Chrysler’s new car sales dropping by almost 50%.
Of course, almost all car companies are reporting some drop in sales in September, which is the first full month with out the government run incentive program Cash for Clunkers.
Saturn, who is in the process of being phased out of production, saw the most significant drop of near 90%.
Boosted by fleet sales, Ford actually weathered the storm fairly well, seeing about a 15% drop in consumer sales, but a 23% increase in fleet sales. In the end, Ford was about 5% below where they were last year in sales. Ford’s Volvo Division, also did quite well, seeing sales increase.
Ford, who was the only company who did not accept bail out money, has been aggressively marketing their cars over seas and overall trouncing other American automakers on most fronts.
Cadillac, which is GM’s luxury brand saw sales increase as well, although this was not enough to bring GM out of the gutter.
It now is clear that Cash for Clunkers was a very effective means of getting the public to purchase a new car, with it going a long way to stimulating the auto industry.
One of the biggest criticisms of the incentive program was that it might be just getting people to push up their car purchases, but not really stimulating that many new sales. The argument being that perhaps most of those who used the Cash for Clunkers program were planning on buying a new car anyway, but pushed up their time table to take advantage of the program.
While it is still too early to say, it is safe to assume that the record sales of August, when Cash for Clunkers was winding down, will probably not be seen again for some time.
With this September Slump in sales, it begs the question whether the boost provided by Cash for Clunkers will be enough to helps the like of Chrysler and GM, who are already fairly close to being unsustainable.
Perhaps the government will have better luck running them than the previous executives though, who seemed to be more concerned with their lifestyle than the direction they had let their companies go.
However, with such a sharp decline, it is hard to think that these companies would be salvageable, well at least not on their own. Fortunately, the tax payers are there, so these companies do not have to worry about making a better product.
Yesterday, it was reported that General Motors would be brining back over 1,300 union workers. This increase is as a result of greatly improved new car sales, which had previously eluded GM.
This increase means adding shifts to GM plants in both Ohio and Canada, to help keep up with demand. This increase is expected to add over 50,000 new GM vehicles, which represents a 20% increase over last quarter. All told, GM estimates that it will produce 642,000 new vehicles in the fourth quarter of this year.
GM is not the only company to show increases in sales. Other car manufacturers, such as Ford, are also reporting greater sales. Ford, who did not accept bailout money and has instead been focusing on making more reliable fuel efficient vehicles, has been expanding its oversees market for some time, which is one reason it was able to avoid many of the problems that plagued GM and Chevrolet.
While some economists are siting this increase in car sales as an indication that the recession is over or drawing to an end, this is rather optimistic. Many of these new car sales are as a result of the Cash for Clunkers Program, which offers up to $4,500 for those who trade in an inefficient vehicle.
Since a great number, if not the overwhelming majority, of these new car sales come as part of the Cash for Clunkers Program, the question remains, will people continue buying cars when the program expires in November.
It is likely that many people who had been planning on purchasing a new vehicle in the future, decided to buy a new car earlier, so that they could take advantage of the economic stimulus program. The supply of those wanting to buy new cars is not finite, so it is possible that the Cash for Clunkers program generated a great number of sales early, but once the plan expires, sales will drop lower than they were before.
While it is certainly a very good sign that GM is adding more shifts and that our car companies have had a few very good months, it remains to be seen as to whether this will be enough to pull them out of the danger zone.
On Thursday, the US Senate approved a bill allocating an addition $2 Billion for the Cash for Clunkers program. President Obama is expected to quickly sign the bill into law, so the stimulus program can continue.
The Cash for Clunkers program is designed to provide an incentive for Americans to trade in their older car for a new more fuel efficient vehicle. The incentive program offers $3,500 or $4,500 for vehicles that have a 4mpg or 10mpg increase in fuel efficiency respectively. As part of the Cash for Clunkers incentive program, the trade in vehicle must be destroyed.
The bill that was passed in the Senate yesterday comes a week after announcements that the budget for the Cash for Clunkers program had been expended. The US House of Representatives quickly passed a bill the following day, allocating an additional $2 Billion. This bill was passed by the Senate a week later, with a vote of 60 to 37.
While there are some legislators that are very critical of the Cash for Clunkers program, it is hard to say that it has not stimulated the economy. It is estimated that more than 250,000 new cars have been bought so far as part of the stimulus program. This has a very big impact on new car dealers, but it also helps out many other industries, including scrap yards and metal recyclers.
The scrap yards are not able to use the engine of a car traded in as part of the Cash for Clunkers program, because the engine must be destroyed. However, they can recycle the other parts on the car to sell them used. The rest of the vehicle is subsequently recycled for scrap metal.
While the Cash for Clunkers program does offer a number of real time benefits, both for new car owners and for new car dealers, it also will have a very big long term effect.
Each of the new cars purchased as part of the incentive program must at least have a 4mpg increase in fuel efficiency. Since the trade in vehicles are essentially decommissioned and taken off the road, this means that this program significantly increases our overall fuel efficiency. Over the course of five or ten years, this will account for greatly reduced gas consumption.
When considering vehicle gas consumption and fuel efficiency, it might be easy to think that 4mpg is an insignificant number, but this is not necessarily the case.
To put this in perspective, take a car that gets 15mpg and a car that gets 30mpg. If each of these cars are driven 10,000 miles they will use approximately 667 and 333 gallons of gas respectively.
An increase of only 4mpg to 19mpg and 34mpg, will have a much larger effect on the low gas millage car than the less fuel efficient car. The 19mpg car will use almost 141 fewer gallons of gas every year, while the 34mpg will only use 39 fewer gallons of gas.
As a result, increasing fuel efficiency by 4mpg in our less fuel efficient vehicles will have a very big impact on our gas consumption as a country.