Cash for Clunkers Is A Massive Success

One of the signs we have been waiting for as a sign of improvement in gross domestic product (GDP), a turn around in car sales, is happening. You may have heard yesterday that Ford disclosed that its sales for July were up compared to last year’s sales. This is the first time in almost two years that any of the major car manufacturers has had an up sales month. The other major car manufacturers saw improvement in their results if not positive sales gains.

The increase in sales is largely attributable to the U.S. government’s “cash for clunkers” program. One $billion was set aside to fund the program and U.S. citizens rapidly gobbled up the incentive. What will be interesting is to see whether or not the Fed’s investment of $1 billion was money well spent. The stock market seems to be rallying in response to Ford’s announcement. Having many such rallies in the last several weeks should lead to relaxation of the Nation’s collective sphincter. Of course the other thing to monitor is whether or not car sales increase sans the big incentive to spend.

Even if car purchases don’t increase in August after having had the pump primed in July, I still have to chalk this news up in the “positive” column. Why? Because if all it took was $1 billion to induce improvements in car sales, that means that the marginal consumer is pretty close to opening up her/his wallet. To me that indicates that most of the fear of the recession has abated.

Keep them fingers crossed!

Jason