This is the first in a series where we will explore the companies that may see a benefit from the Cash for Clunkers initiative. (By the way, the U.S. did not create this idea, it has been working with some success around the world for some time)
This first installment will discuss the plan itself and each subsequent article will explore a company an its potential investment opportunity.
Well, it passed. The Cash for Clunkers initiative is now official, pending President Obama’s signature. Undoubtedly you have heard of this and probably you are not too keen on the idea of the government funding another $1 billion or so in an effort to create better fuel efficiency, while pushing money to the auto industry. (The official name of the program is C.A.R.S. – “Consumer Assistance to Recycle and Save Program” (www.ConsumerAssistanceToRecycleAndSaveProgram.org) – and is Title XIII of Bill H.R. 2346. T and was embedded in the Supplemental Appropriations Act – The War Bill). Also note that the rebate is TAX FREE to the consumer.
Before we get into detail about the thesis as to why there may be a financial benefit to certain companies, let me first state some objection to the plan…
Let’s start with the idea that cars with low fuel efficiency and valued under $5,000 can now be exchanged for new cars that can achieve at least 3-5 more miles per gallon. The notion that 3-5 mpg is something we aspire to is, well…uninspiring.
We have the technology and if we are spending the money already, the government should demand better. But, the truth is they do not care about that. It is another grand ruse to simply get consumers to pitch in and help out the auto dealers and manufacturers. It reminds me of the recent stress tests that were designed to persuade/dupe investors to pump money into failing banks.
What’s more, this plan begs a question: Are there that many people that actually own a car worth less than $5,000 who want to/afford to purchase a new car? Is it possible that the reason they own a car with a value under $5,0oo is that they are on a limited budget and choose not to spend the money on a new car? Further, it is a worry that they will now be at the mercy of the ruthless car salesman who has the ability to provide a credit and payment plan to fit every budget.
Do you think that consumers will be getting the best deal from this measure? Will the dealership find a way to “share in” some of the clunker money rather than pass it along fully to the consumer? And…. if the consumer now has an a new payment to make for 4, 5 or 6 years, what makes us think that they can afford to pay? What happens when some of those in this group of new car owners is late on payment or defaults? Is the government ( spelled: you-n-me ) going to have to make good?
An article in the Washington Post also brings out some very good points:
Those paltry results will merely represent the shifting of future demand for cars to the present; they will also come at the expense of sales of other goods that people might have chosen to buy this summer or fall. This is why Germany’s program, though it dramatically boosted new-car sales, was also met with criticism from other retail businesses, as well as used-car dealers, spare-parts suppliers and repair shops.
Okay, with that said, there is still an investment opportunity and here is what we believe will be some of the best investments that will be created from this initiative:
- Used auto parts companies
- Scrap metal companies that specialize in autos
- Auto recycling companies
- Vehicle Auctioneers
- Car dealers and manufacturers
- Steel and parts companies
- Cash for Clunkers: WHY?
- CFC Official Site and Calculator
- Cash for Clunkers (Our List of Target Companies) *Trial available – contact Laura Rahuba to arrange 10-days of free access to our private client blog