As the late Will Rodgers said (Paraphrasing): “America is the only country where the people drive to the poor house in a Lincoln Continental. Boo hoo babies, we told you so. Wait a few months these cars will be back on sale by the places that handled the loans for us. Why would one trade a good car that may be older for a 3, 4 or 5OO a month payment when there is other things needed. We that live on the edge have other more pressing concerns than some new bell or whistle. Try eating and other things that are much more important.

tndoc3, who are you addressing? Are you saying that poor people are getting financing and they’re the ones trading in on the C4C?

You make no sense.

As for the column, this is opinion being paraded as analysis. What bearing does the average monthly loan have to the average monthly loan of a C4C loan (which will be substantially less than the provided $400.00).

Do you even know what the average purchase price (or amount financed) is for C4C car purchases?

Then, the “Purdue Retail Institute” author leaps to the conclusion that the the average monthly loan (pre-C4C) multiplied by the estimated number of C4C cars purchased is somehow being diverted from the coming fall retail sales. Huh?

This seems to conclude that people are now not going to buy that new fridge because they bought a new car. Possibly, but how many would have bought that new fridge anyway? Absolute conjecture, and the overly simplistic “formula” offered, coupled with the faulty numbers leads me to question why this was cherry-picked by Mr. Niklaus.

I understand Mr. Niklaus posted his “lemon” editorial the same day that the Post published a story outlining how much new sales were being driven by C4C, but this smacks of desperation to justify rather than reporting.

Personally, I think C4C is ridiculous based on principle. But to deny it’s bumping sales and circulating money is ridiculous, too.

What about the dealers, believe it or not cash for clunkers is going to run a lot of dealers broke. The govt is relying on the dealers to float the money for these rebates for up to 15 days, while their revenue stream is being completely depleted.
Dealers are selling out of their inventory and getting no used cars in that they can retail, all while having to put up all of their cash for the rebates while they wait for the government to pay them back.

STLM, methinks you miss the point entirely. Your post is a fine one if your assumptions are correct. However, we can agree that there is a limited albeit large money supply. Any money being spent on autos is money that CAN’T be spent on something else. Yes, it might not of been anyway, but now if definitely can’t because it is tied up in car payments. Given American’s habit of spending extra money rather than save it, those savings had a good chance of being spent in the near future. Only now they can’t because of car payments. This is a completely logical and economically-sound line of thought.

David’s analysis of the C4C program is right on the money economically speaking. He wrote the same thing months ago when this program was first proposed. Other impacts, like the affect of used car prices on people who can’t afford a new one, were also valid then and now.

This program is a money giveaway that, like Bush’s rebate check, will not have a lasting impact on our economy. Even worse, it favors one industry (auto) at the expense of all others.

David’s posts have been pretty spot-on and correct STLM.

“Given American’s habit of spending extra money rather than save it, those savings had a good chance of being spent in the near future”

Back that statement up. Show me how you know that there’s a “good chance.”

That’s all I’m asking. Back up the “analysis” with actual analysis.

STLM, I base that statement on the savings rate of Americans compared to many other industrialized nations. The World Bank has a study available for online viewing. I know at some point in 2004 the U.S. savings rate fell to 0.0% per a Christian Science Monitor article. I believe in 2005 the rate was actually negative for the year for the first time since the Great Depression (from a 1/30/06 article on MSNBC.com titled “U.S. savings rate hits lowest level since 1933″). Rate of saving has risen slightly the last 18 months based on what I have read lately.

I hope those sources are of some assistance. Also, if you talk to others who reguarly read the economic and business news I think you will find this information to be pretty commonly known. Thanks.

No need to thank me, Tim.

Please explain why retail sales have been at historic lows the past year if everyone’s spending so much. Also, explain why they would suddenly unleash spending in the Fall if it weren’t for this pesky C4C program. It’s amazing how everyone’s a sociologist and knows what consumer behavior would have been based on poor savings rates among Americans.

Here’s the problem I have: you’re not justifying the position that the C4C program is derailing retail sales. Mr. Niklaus isn’t, either. The Purdue analyst isn’t either. I could just as easily say that fall retail sales would be dismal anyway based on retail sales trends the past year… and I would have more data.

I’d love to see a comprehensive analysis of C4C, and no doubt one will be forthcoming once all data is available. I have yet to see that analysis from Nicklaus and wonder why he’s taking a position rather than examining both the benefits and pitfalls of C4C.

Using public monies to subsidize an industry’s sales is wrong, but to ignore the benefits isn’t good reporting. It’s called editorializing.

This isn’t an analysis from Mr. Feinberg and isn’t posited as such. It’s a prediction (you can tell because Mr. Nicklaus writes, “he predicts” before sharing Mr. Feinberg’s thoughts). You can’t analyze the program without all available information and considering this program is in its infancy, it’s easy to say that all the information isn’t yet available.

Rather, Mr. Feinberg makes certain assumptions and then bases his prediction on those. Assuming a limited supply of capital, a low historic savings rate and an average payment of $400 per month, he predicts that $1.5B into car payments takes $1.5B out of circulation for other household discretionary spending. That’s not entirely far-fetched.

There are mitigating factors, of course. $400 may be too much (that’s about $23k financed given a 60-mo loan at 7% APR). How about $300? That’s $1.125B according to Mr. Feinberg’s assumptions. Also, capital may not be limited, if people are willing to increase household debt. Is that a realistic assumption? Further, given the latest savings rate (6.9% for May, according to the Commerce Dept), is it correct to assume the full $1.5B would otherwise be spent? Probably not, do decrement accordingly. That’s $1.4B. Point is, people only spend or save. When you give incentives to spend in one area, that affects either savings or spending in other areas.

Sigh.

“Here’s the problem I have: you’re not justifying the position that the C4C program is derailing retail sales. Mr. Niklaus isn’t, either. The Purdue analyst isn’t either. I could just as easily say that fall retail sales would be dismal anyway based on retail sales trends the past year… and I would have more data”

You didn’t ask for that last time. Since you have no further comment about the savings rate, I assume you concede that point to me. Wise move considering I was right all along.

Retail sales are at a low because disposable income is at a low. Personal value has eroded in the markets and the unemployment rate is at 10%. That is easy enough to see. However, the C4C program is a tremendous deal for those that either a) were looking or needing to purchase a car in the near term, or b) someone with the income level to upgrade even though they were not planning on it in the near term. Either way, you are no doubt moving some people’s purhcase plans forward because of the C4C program. That leaves less people on average to purchase vehicles in the next few months because they have done so during the C4C program. So the bump in autos will probably be followed by a trough later on.

The reason this could affect the Christmas shopping season is that available spending is a limited total, and if more people are spending NOW that means less will have the means to do so LATER. You think what David and the Purdue Institute are saying is that there was going to be a surge in the fall. That is not what they are saying. What they are saying is the surge NOW caused by the C4C program will leave less money for the shopping season ahead. So instead of the expected weak season for the last part of 2009 it will possibly be even WEAKER given the chunk of total disposable income in America being spent on the autos. Don’t forget that this “stimulus” is very specific to the auto industry and therefore no other segment of the economy sees a benefit (and actually it hurts them because, again, limited dollars are being overly directed into autos which leaves less to be spent on everyone else).

Of course only time will tell if this is the actual outcome of the C4C program. No one has a crystal ball. Employment may take a huge turn for the better and incomes rise dramactically (not likely of course). But in theory it makes practical and reasonable sense. This is not socioligy, more like statistical analysis. How can it not make sense to you that a larger than average chunk of limited dollars being spent on autos now affects every other industry now, and ALL industries later?

—————————-
>>”This isn’t an analysis from Mr. Feinberg and isn’t posited as such. It’s a prediction (you can tell because Mr. Nicklaus writes, “he predicts” before sharing Mr. Feinberg’s thoughts).”
—————————-

Please re-read the article above, “he predicts” doesn’t appear. Actually, Mr. Nicklaus offers the following:
“… or at least is coming out of savings accounts that wouldn’t have been spent on anything else. But that isn’t necessarily the case, says Richard Feinberg of the Purdue Retail Institute.”

I’m fine with a prediction, if it’s backed up but the faulty assumptions being made are glaring.

—————————-
>>”Rather, Mr. Feinberg makes certain assumptions and then bases his prediction on those. Assuming a limited supply of capital, a low historic savings rate and an average payment of $400 per month, he predicts that $1.5B into car payments takes $1.5B out of circulation for other household discretionary spending. That’s not entirely far-fetched.”
—————————-

The assumption of a limited supply of capital is, of course, obvious. The assumption of the extent of the that supply is a guess, at best.

The assumption of $400.00 per month is based on pre-C4C data. Your assumption of $300.00 may be too much, considering the incentives being piled onto the base C4C rebate and any negotiated price based on credit score. It is a fairly solid assumption that those receiving financing now are on much more solid footing (in terms of FICO) than buyers past.

The assumption *all* of the money spent on C4C purchases is financed is silly, at best. I’d wager that once we see the average amount financed finally it’ll be shockingly low. Just look at the incentives being offered pre-C4C and the average selling price the past two quarters.

—————————-
>>There are mitigating factors, of course.
—————————-

Of course, the majority of which are not even addressed. Which is my point.

—————————-
>>Further, given the latest savings rate (6.9% for May, according to the Commerce Dept), is it correct to assume the full $1.5B would otherwise be spent? Probably not, do decrement accordingly. That’s $1.4B. Point is, people only spend or save. When you give incentives to spend in one area, that affects either savings or spending in other areas.
—————————-

The Bureau of Economic Analysis pegs the savings rate quarterly at a little over 5% of disposable income for the second quarter of 2009. That’s a jump of over 1% over the *previous* quarter and represents not only one the largest increases (top five) quarter-to-quarter since 2000, but leaves the U.S. at the largest quarterly savings rate since the 90s.

What does that tell us? People aren’t spending for a variety of measurable reasons (consumer confidence being one). Of course C4C will affect large-ticket purchases for the small percentage of consumers taking advantage of the program. How much? You have no idea, and neither do Mr. Nicklaus or Mr. Feinberg.

To suggest that there’s a straight line from the C4C program to poor retail sales in the third and fourth quarters is like saying that the weight of the instruments of the band playing on the deck of the Titanic had some measurable effect on the sink-rate of the boat.