General Motors: 'Cash for Clunkers' a Huge Success

General Motors: 'Cash for Clunkers' a Huge Success
Amanda Ruggeri

"Cash for Clunkers" program (c) Michael Osbun

Not everyone supported the Senate's passage of a bill that boosted "cash for clunkers" by $2 billion, effectively extending it through Labor Day. But it's hard to argue that the program, which gives rebates to people who trade in old cars for more fuel-efficient vehicles, hasn't made the auto industry happy. That's true for General Motors, the auto giant that received roughly $50 billion in government funds and emerged from bankruptcy last month.

Mike DiGiovanni is General Motors' executive director of global market analysis. He's also the "go-to" person on cash for clunkers. U.S. News chatted with DiGiovanni last week about the program's economic impact, which states it's made the happiest, and whether GM is planning on cranking up production.

Overall, cash for clunkers: Thumbs up or thumbs down? It really is all thumbs up. I can't remember too many programs that it's hard to find anything negative about.

How is the program helping the economy? The auto industry is probably the industry that has the largest multiplier effect on the U.S. economy. So by this happening, what's going to occur is that all of the major auto manufacturers are going to increase production moving into the third and fourth quarters. That's obviously going to add jobs, because then we're adding third shifts and overtime, and perhaps plants that were down will come up. Employment increases, incomes rise, and people buy things. So the multiplier effect through the economy is pretty big. We think that GDP could go up a full point in the third quarter because of this program.

How much do you think the program will raise sales? We think the $3 billion will raise industry sales about 750,000 units this year, which is huge when you're considering an industry with a less than a 10 million-per-year rate -- the worst in half a century.

A report from Edmunds.com last week said that consumer interest in the program already has started to wane. It forecast that new car purchases could go down to preprogram levels as early as late this week. We don't see that in our data, I gotta tell you. We are accelerating it, actually. In the first part of the month, we're way ahead of last month.

Would you support a bill that made this program longer-term? Absolutely. We wish they would have just done the original plan, $4 billion and over a year, so people don't panic. By spreading the money out, people can take their time. When it fits into their budget, they can purchase it. Everybody would wait; you wouldn't have this rush to the finish line, cramming it into three months. But when the government says [the program is] only going to be three months, that's what you get. But we'll take it. That's better than nothing.

How would it still be stimulus if it went over a year? If they had done it for a whole year, what would have happened is you would have had a bigger lift overall in industry sales. A lot of forecasters are forecasting next year [to be in the] 11.5 million range [for annual car sales]. If we had continued this thing on, it might have boosted this half a million above that number.

Some critics of the program have said the program plays favorites with industries. Rep. Jeb Hensarling, a Texas Republican, asked why we don't have a similar incentive to pay people to, say, eat chickens -- "cash for cluckers," if you will. That's not true. The multiplier effect from the automobile industry is way, way higher than for any of those other industries. Not that they're not important, but our last big manufacturing base in this country is automobiles. It's a $500 billion industry. I don't think chickens are quite that big. The multiplier effect off of this industry, when you start to increase production because of rising demand for new-car sales, is just much greater. That's been documented by every school of business in the United States. So that's just fact No. 1: You get a bigger impact from cars.

Fact No. 2? Fact No. 2 is that we're giving lots of money to banks, and the auto industry has benefited, [so] why not give some money to consumers? A lot of the complaints have been people saying, "Why don't you just give us the money you gave to the banks? We would have spent it on goods and services and gotten the economy rolling." So why not give consumers a break here, too?

Have the multiplier effects of the program been undermined at all by foreign cars being sold? Four in five of the top-selling cars through cash for clunkers were foreign. Actually, we were a point higher in July than our normal share point. Our [U.S. auto manufacturers'] share of the program was 45 percent in July. We typically have been running 44 percent, so we actually had a point higher. So it's been fair to us. I wouldn't be surprised this month if domestic share goes up. I think we're going to have a really good month.

One worry has been that the program has been so popular, inventory levels at dealerships are now too low. Are you planning on ratcheting up production to address this? That's what we're looking at. Our executive committee met today on that very subject of where we want to increase production.

When? And by how much? I don't want to say, but I can say we've made public that our third-quarter production volumes are going to be up 35 percent versus quarter two, which is a big increase. And we're probably going to boost that further in quarter four. We haven't announced quarter four yet. But, yes, we're looking at what could be some sizeable increases in production.

Are there worries at GM that a program like cash for clunkers -- coming on top of the government bailout -- makes it look like you're leaning on taxpayers too much? To be honest with you, I really think the negativism that we went through with the bankruptcy, and the ugliness -- which was a fun thing to live through -- are behind us. Now really what I see happening, one month later after we physically emerged [from bankruptcy], is we're finally able to switch gears and talk about our great new products that have been doing really well over the years. I think we're causing people to go, "Wow, these products are good." And some of the innovative things we're trying are really pretty interesting. So this thinking of, "Oh, we're feeding into the public trough here because of cash for clunkers" -- we're not really afraid of that. Besides that, it isn't us. The imports and domestics are all equally benefiting from this. It's pretty hard to draw that conclusion.

Is the program influencing GM to develop more fuel-efficient vehicles? That's the irony of the thing: We've already made that decision. I came into this job a couple of years ago, and one of the first things I did was raise our long-term oil price forecast to a very high number.

Why? You're better to plan for high fuel prices because it makes you do all the right things. It makes you produce fuel-efficient vehicles; even if you don't produce them, your competitors are anyway, so it makes sure you're very competitive. Even if those aren't true, the government is going to mandate it anyway through CO2 emissions [regulations] and CAFE [corporate average fuel efficiency] laws, which they have. Only good things can happen to you when you plan for high fuel prices.

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