The numbers are in and the cash-for-clunkers program gave motor vehicle sales their biggest lift in three years.  Sales jumped to 14.1 million unit pace in August, with small cars accounting for most of the increase.

CLUNKERS JUST MIGHT PAVE THE WAY TO RECOVERY.  Motor vehicle sales surged in August to a 14.1 million annual unit pace boosted by the cash-for-clunkers program.  This is the larges gain on a year over year basis since 2006.  Dealers submitted 690,114 transactions, exhausting nearly all of the $3 billion supplementary appropriation far ahead of the expiration date.  According to the U.S. Department of Transportation, 84 percent of the trade-ins were trucks and 59 percent of new vehicles purchased were cars.

The impact from the program can be seen across a host of economic indicators, including industrial production, inventories and retail sales.  The vault in vehicle production and manufacturer sales will likely help boost GDP to around a 3.8 percent annual rate in the third quarter.  Outside the auto sector the economy is simply getting less bad.  While final demand is showing some improvement, income remains under pressure, suggesting the third quarter rebound will likely give way later this year.  So after an initial jolt, growth will likely settle back down to a 2 percent pace…

Many consumers moved up new car purchases to take advantage of temporary rebates, essentially borrowing sales from the future.  New vehicle sales will likely tumble in coming months.  Moreover, the majority of clunkers traded in probably were owned outright and replaced with new vehicles and a payment book.  Now these car buyers will have less discretionary dollars to spend or save, which may take a toll on spending this holiday season.  Car repair shops also came out on the short end of clunkernomics, effectively losing current and future sales to the scrap heap.

 

 

 

Source:  U.S. Department of Commerce and Wells Fargo Securities, LLC