Will Cash for Clunkers Lead to Stimulus or Slump for Auto Dealers?

U.S. Transportation Secretary Ray LaHood said on Tuesday [August 4, 2009] that the extra $2 billion Congress is expected to allocate for the popular Cash for Clunkers program, probably would keep it running through Labor Day. But the big question is what will happen when the government finally stops handing out rebates to help people buy new fuel-efficient cars?

An August 5 Washington Post story reports that while some auto dealers are worried about a return to sluggish sales once the program ends, many others are optimistic that consumers will continue to purchase new vehicles even without the government rebates.

I’m no economist, but I do know something about human nature and household budgeting. Once the Cash for Clunkers program ends and those $4,500 rebates are no longer available as economic incentives to help people make the decision to buy a new car now instead of later, I think auto dealers nationwide are going to see a slump that could be worse than the one they’re coming out of—at least for awhile.

Consumers who didn’t get in on the Cash for Clunkers deal are likely to feel that they missed out on a big bargain. Chances are they’ll put away their checkbooks for awhile, even if they can afford a new car without the government rebate, because buying a product the day after a big sale can make anyone feel like a chump.

Once we start to see signs of a stronger economic recovery, consumer confidence will rebound and sales will increase. Until then, programs like Cash for Clunkers may provide some temporary relief for U.S. businesses and a few bargains for U.S. consumers, but they’re economic band-aids at best.

Also Read:

• Who Does Cash for Clunkers Really Help?
• What are the Benefits of the Cash for Clunkers Program?
• What are the Drawbacks of the Cash for Clunkers Program?
• FTC Warns of Bogus "Cash for Clunkers" Web Sites -- About.com: U.S. Government Info