Is Cash for Clunkers Leading the Recovery?

Well, yeah. Although this is just in from Edmunds.com, a consumer site that also does plenty of auto-industry analysis. CEO Jeremy Anwyl is doing the talking:

“Now that there is plenty of money in the program and the most eager shoppers have already participated, the sense of urgency is gone, and the pace of intent decline is accelerating. ... Inventories are getting lean and prices are climbing, giving consumers reasons to sit back."

Edmunds says the pace of C4C purchasing is down 30 percent from its peak, which is a decline, to be sure. But even a drop of that magnitude means that there’s still far more consumer interest in buying a new car and getting rid of a gas guzzler or old vehicle than there was just two months ago.

Also note that “[i]nventories are getting lean.” They sure are. Several Ford (F) dealers I spoke with recently told me that they blew through all their small- and mid-size cars in a hurry and now need more. But they also indicated that C4C has had a distinct follow-on effect, getting customers into the showrooms and onto the lots, where they can investigate other new car buying options. My sense is that dealers are cautiously optimistic about the program’s future now that Congress has funded it with an additional $2 billion. But they’re reporting that the American consumer, who’s been sidelined for more than six months (or more), is now back in the game. And as consumer purchasing confidence goes, so goes the U.S. economy.

There’s more good news: GM is upping production to meet demands for a variety of vehicles. Some of this is C4C-driven, but given the mix of cars and trucks, including the new Camaro, some of it is probably strategic, an anticipation of a general market recovery.

So let’s add it up. Approximately $50 billion to bail out GM (MTLQQ). Something like $14 billion to join Chrysler with Fiat. Around $6 billion in Department of Energy loans to Ford to develop advanced vehicle technology. And now $3 billion in Cash for Clunkers coin. That totals $73 billion to keep the U.S. auto industry on its feet, and, not incidentally, to help the foreign transplants, such as Toyota, Honda, and Nissan, recover sales. The U.S. industrial economy is moving again. Workers are going back to work. Consumers are able to buy large and expensive forms of personal transportation, into which they will put gasoline provided by giant international oil companies. Loans are being made. Money is changing hands. In the real economy, not the elite casino located in Bubbleville, aka Lower Manhattan.

And it cost Uncle Sam a mere $73 billion. OK, I know that number could grow. But the bailout of the financial sector could cost anywhere from $4 trillion to … more than $20 trillion, depending on whom you believe. And so far, we really haven’t seen any notable improvement in the core problem, which is sorting out the weaponized securitized home loan products that led to Armageddon. So I ask you: Does the budget bailout of the auto industry now look like the bargain of the new century? Maybe what’s good for General Motors, and the rest of the U.S. auto industry, is still good for the United States.