I don’t believe it. Well, of course I do, because I predicted it: The Obama regime has begun inflating the automotive bubble by purchasing 17,600 “green” automobiles from GM, Ford, and Chrysler as part of its counterproductive $787 billion stimulus plan. It will spend $285 million on the automobiles by June 1, 2009. The secondary purpose of the purchases is to replace older, lower-tech, less fuel-efficient cars in the federal government’s fleet with newer cars that use less gas and expel less carbon. The primary purpose, as stated by the White House’s official press release, is “to increase demand for American auto companies during these difficult economic times.”
I know a quarter of a billion dollars is small beans compared to the twenty or so billion dollars the federal government recently gave—oh, sorry, “loaned”—to GM and Chrysler, but these purchases will only increase the calculated demand of Detroit vehicles (or, at least, the “green” ones), which will only push up their prices, just as the federal government and the Federal Reserve did with real estate earlier this decade.
Perhaps you’ve heard about the Consumer Assistance to Recycle and Save (CARS) bill, a.k.a. “cash for clunkers,” introduced in the House by Betty Sutton (D-OH). It would give a $3000 to $5000 tax credit to anyone who traded in an eight-year-old vehicle for a car that met certain fuel-efficiency standards. This U.S. News and World Report article gives some details about which American-made or American-assembled cars are expected to qualify for a tax credit under that program. (Note that they aren’t all Big Three products.) It hasn’t been signed into law, but I predict something like it will be.
Also, don’t forget that the federal government will throw more money at the Big Three; it is unrealistic to assume they can remain profitable for long, if at all; artificial stimulation of sales will constitute a small portion of Obama’s interference with their restructuring and refocusing. More money, more incentives, more subsidies, more edicts from on high.
It is far from over. This is only the beginning of the auto bubble. It will be inflated while the Big Three stagger on the inadequate legs provided by the government, and when the bubble bursts because demand isn’t high enough and Americans can’t afford to keep buying cars—de facto or de jure nationalization.