Cash for Non-Clunkers to the Rescue!

In Reno this week, we see a daily parade of literally thousands of classic U.S. cars made in the 1950s to the 1970s, in pristine condition, parading through the streets of Reno. “Hot August Nights” is the most crowded time of the year here. As a fan of classic “muscle cars,” I love to see these much-maligned high-performance non-clunkers on the road, almost in defiance of the Death-for-Clunkers witch hunt.

Last Thursday, the U.S. Senate approved (by a vote of 60 to 37, mostly along partisan lines) an additional $2 billion for the Cash for Clunker program, which offers up to $4,500 to trade in older, less fuel-efficient vehicles and buy new, more fuel-efficient ones. So far, $775 million of the initial $1 billion program has been spent, financing nearly 185,000 new vehicles. But are all their old trade-in cars really “clunkers”?

So far, the federal government reports that small (relatively fuel-efficient) cars, such as the Ford Focus and Toyota Corolla, are the most-frequent “clunkers” being turned in, as measured by engine and transmission types. Among trucks, the Chevrolet Silverado and Ford F-150 with smaller fuel-efficient engines are also among the top 10 sellers. So, it looks like a zero-sum game in the emissions department.

Ironically, the Cash-for-Clunker program calls for these clunkers to be destroyed – euthanized; put down. But some Germans are cheating in their cash-for-clunkers program. Last Wednesday, it was reported that an estimated 50,000 German “clunkers” were sold illegally overseas, since they were still good cars.

The good news is that, due to the success of the U.S. Cash-for-Clunkers plan, many economists are now upgrading their GDP forecasts. For instance, Joshua Shapiro originally predicted just 0.2% GDP growth in the third quarter and no GDP growth in the fourth quarter. Now, thanks to the auto sales surge, he expects 2% GDP growth for the second half of this year. Other economists are even more optimistic:

UBS is now predicting 2.5% growth in the third quarter, up from its previous forecast of 2%, and they now see 3% growth in the fourth quarter, up from a previous forecast of 2.5%.

Wells Fargo also revised its third quarter forecast to 3% growth, up from its previous forecast of 2.2%. For the fourth quarter, Wells is now predicting 2.0%, up from its previous forecast of 1.6%.
Moody’s chief economist Mark Zandi revised his third quarter forecast to 1.6% from his previous forecast of 1.1%, and his fourth quarter forecast to 2.1%, up from 0.2%.
T. Rowe Price increased its third quarter GDP forecast to 2.75%, double its previous 1.3%.

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