Post by Chris_Wendt on Aug 1, 2009 7:47:36 GMT -5
‘Cash for Clunkers’ has provided us with perhaps the greatest Economics lesson since Guns-and-Butter, yet the value of this lesson, in fact the very existence of this lesson is being completely missed by the media, by the government (who are slaves to the media), and by what is jokingly referred-to as “The American Automobile Industry”. So, for your benefit, please allow me to present this lesson.
Background:
Situation:
Lesson:
1. This is NOT at all what it appears, yet what it is, is so much more important than what the media and the government and most car manufacturers are reading into it. It has NOTHING TO DO with a failed or a wildly successful government program.
2. Despite all the doom-and-gloom listed in the background, there is a potentially vibrant and vital “American Automobile MARKET! which has pent-up demand capable of consuming 125,000 new cars in less than 1 week!
3. The “VALUE POINT” for new, fuel efficient cars in the “American Automobile MARKET is between $3,500 and $4,500 BELOW the current ”PRICE POINTS” for these cars, set by the manufacturers!
4. Despite bailouts and bankruptcies, “The American Automobile Industry” (there really is no such thing in the context of the Global Economy) has FAILED to develop manufacturing and distribution methods that will allow their new, fuel efficient cars to be able to be sold at the “VALUE POINT” which has been established by the “American Automobile MARKET, meaning $3,550 to $4,500 less than the current costs to make and distribute new cars.
5. There is a NEW market dynamic embraced by consumers in the “American Automobile MARKET": people will part with their once fashionable, long-held, familiar, comfortable, but inefficient family vehicles in favor of a brand new “fashion” discriminator: FUEL EFFICIENCY!!!
6. This NEW market dynamic also includes removal of consumer cynicism about trade-ins and getting ripped-off, because this new program requires the traded vehicles be destroyed and recycled: it is GREEN![/i]
7. It appears there have not been enough new, fuel efficient cars produced for sale in America to satisfy potential market demand for them.
So, here are the take-aways from this lesson:
This is a very powerful lesson that has been revealed. We must learn from what we are witnessing.
Sincerely,
Chris Wendt
Background:
- Global economic Crisis
- Massive and deepening unemployment
- Two of “The American Automobile Industry’s” “Big Three” in bankruptcy and/or federal ownership
- Dispirited (worried) consumers
Situation:
- A $1 Billion government program offering incentives of either $3,500 or $4,500 directly to consumers who purchase new cars which are more fuel efficient than their presently owned, older cars, which must be traded-in and destroyed.
- After only six (6) days in effect, the ‘Cash for Clunkers’ program generated sales of 125,000 new, fuel efficient cars and consumed all of the allocated rebate money which it was thought would have lasted until November.
- 125,000 old, inefficient gas-guzzling cars taken off the road and recycled for their steel
- the government is attempting to fund this program with an additional $2 Billion (about two more weeks’ worth) of rebates
- Chrysler has reportedly sold-out of new model cars which could qualify for fuel-efficiency rebates
Lesson:
1. This is NOT at all what it appears, yet what it is, is so much more important than what the media and the government and most car manufacturers are reading into it. It has NOTHING TO DO with a failed or a wildly successful government program.
2. Despite all the doom-and-gloom listed in the background, there is a potentially vibrant and vital “American Automobile MARKET! which has pent-up demand capable of consuming 125,000 new cars in less than 1 week!
3. The “VALUE POINT” for new, fuel efficient cars in the “American Automobile MARKET is between $3,500 and $4,500 BELOW the current ”PRICE POINTS” for these cars, set by the manufacturers!
4. Despite bailouts and bankruptcies, “The American Automobile Industry” (there really is no such thing in the context of the Global Economy) has FAILED to develop manufacturing and distribution methods that will allow their new, fuel efficient cars to be able to be sold at the “VALUE POINT” which has been established by the “American Automobile MARKET, meaning $3,550 to $4,500 less than the current costs to make and distribute new cars.
5. There is a NEW market dynamic embraced by consumers in the “American Automobile MARKET": people will part with their once fashionable, long-held, familiar, comfortable, but inefficient family vehicles in favor of a brand new “fashion” discriminator: FUEL EFFICIENCY!!!
6. This NEW market dynamic also includes removal of consumer cynicism about trade-ins and getting ripped-off, because this new program requires the traded vehicles be destroyed and recycled: it is GREEN![/i]
7. It appears there have not been enough new, fuel efficient cars produced for sale in America to satisfy potential market demand for them.
So, here are the take-aways from this lesson:
- - Car manufacturers need to refine and improve manufacturing and distribution methods to remove $3,500 to $4,500 or more from their cost structures
- - Car manufacturers need to recognize the consumers’ desire for fuel efficiency and even more intensely and urgently focus their engineering, manufacturing, and marketing on that demand
- - The auto industry needs to take over what the government has started, by voluntarily continuing an operable program of recycling inefficient trade-ins, keeping the car buying cycle “GREEN”
- - The “American Automobile MARKET, needs to be able to operate freely and without government program props. Taxpayers should NOT be financing new car sales to the public.
- - Eventually, and probably very soon, the ‘Cash for Clunkers’ program will end for lack of either money or eligible cars: THEN what is “”DETROIT”” going to do? I foresee this spelling the final chapter for Chrysler and the New GM, and their ultimate demise becoming a watershed for Ford, and for those “foreign” brands who manufacture cars here in America, meaning the in U.S., Canada and Mexico.
This is a very powerful lesson that has been revealed. We must learn from what we are witnessing.
Sincerely,
Chris Wendt