GM: 'Cash for Clunkers' a Huge Success

Mike DiGiovanni, an executive at GM, says the program will help the economy.

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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?


Corrected on : Updated on 8/18/09