WH adds new enemy to list: Edmunds

The Obama White House has apparently decided to wage a two-front war on the media.  After a blistering analysis of the Cash for Clunkers program from the well-established auto industry analyst Edmunds, the White House tried attacking their credibility while claiming that automakers were planning for greatly-increased demand for their new products.  Business Insider wondered what the administration could be thinking:

On the same day that we found out that motor vehicle output added 1.7% to economic growth in the third quarter – the largest contribution to quarterly growth in over a decade – Edmunds.com has released a faulty analysis suggesting that the Cash for Clunkers program had no meaningful impact on our economy or on overall auto sales. This is the latest of several critical “analyses” of the Cash for Clunkers program from Edmunds.com, which appear designed to grab headlines and get coverage on cable TV. Like many of their previous attempts, this latest claim doesn’t withstand even basic scrutiny.

The Edmunds analysis is based on two implausible assumptions:

1. The Edmunds’ analysis rests on the assumption that the market for cars that didn’t qualify for Cash for Clunkers was completely unaffected by this program.

In other words, all the other cars were being sold on Mars, while the rest of the country was caught up in the excitement of the Cash for Clunkers program.  This analysis ignores not only the price impacts that a program like Cash for Clunkers has on the rest of the vehicle market, but the reports from across the country that people were drawn into dealerships by the Cash for Clunkers program and ended up buying cars even though their old car was not eligible for the program.

The post title?  “Busy Covering Car Sales on Mars, Edmunds.com Gets It Wrong (Again) on Cash for Clunkers.”  Well, that’s certainly presidential.  And, of course, it missed the point — to which Edmunds returns in their rebuttal:

At issue is one point of the analysis showing the taxpayer cost for every incremental vehicle sold was $24,000. To be clear, Edmunds.com is not disputing the government’s statements regarding total voucher applications, vehicles sold or voucher values. The key question is how many of these sales would have occurred anyway.

Apparently, the $24,000 figure caught many by surprise. It shouldn’t have. The truth is that consumer incentive programs are always hugely expensive when calculated by incremental sales — always in the tens of thousands of dollars. Cash for Clunkers was no exception.

The White House claims that our analysis was based on car sales on Mars and that on Earth, the marketplace is connected. We agree the marketplace is connected. In fact, that is exactly the basis of our analysis.

It is also claimed we missed the possibility that Cash for Clunkers generated excitement and consumers bought vehicles even if they didn’t qualify for the program — a claim that has been widely supported by anecdote but by little analysis. It does, after all, seem a bit odd that masses of consumers would elect to buy a vehicle because of a program for which they don’t qualify — doubly so when you add in the fact that prices shot up during Cash for Clunkers, creating a disincentive to buy.

Finally, the White House claims that the increase in fourth-quarter production reported by the car manufacturers can be attributed to Cash for Clunkers. But here is a better reason: the economy is recovering accompanied by improved car sales. No manufacturer increases production — a decision with long-term consequences — based on the 30-day sales blip triggered by an event like Cash for Clunkers.

With all respect to the White House, Edmunds.com thinks that instead of shooting the messenger, government officials should take heart from the core message of the analysis: the fundamentals of the auto marketplace are improving faster than the current sales numbers suggest.

In fact, Edmunds actually avoided the argument made by some critics of the program, who said that most of the sales in the C4C program came at the expense of future sales.  All Edmunds noted with their analysis was that about 5/6ths of the sales would have occurred without taxpayer subsidies, which made the cost of getting the other 1/6th into new cars a very expensive proposition.  Instead of addressing that argument, the administration made arguments about Mars instead.

If the economy has begun to truly improve, of course car sales will increase over the disastrous performance of earlier this year.  However, that relies on actual growth, not gimmicky and momentary incentives from the government, which makes the third quarter auto performance an unreliable indicator of longer-term health (and the same applies to new-home sales as well, another major contributor to Q3′s growth number).  But even with actual growth, the 540,000 people who used taxpayer subsidies to buy last year’s models won’t be heading into showrooms for at least a couple of years to buy new models rolling off the line now or later.

The administration’s reaction once again reveals a very thin skin and a temperament perhaps suited to campaigning, but certainly not towards governing.  When will the White House grow up?

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