Hopes are that instead of selling a very few cars in August, auto companies will sell less few than they did in July. These perverse economics have become the way that Detroit tracks it misery.
Because GM (GM) has lowered prices on most of its cars, economists expect that a modest number of consumers will make their way back into dealerships.
J.D. Power told The Wall Street Journal that "industrywide sales are expected to improve slightly from July’s moribund rate."
Perhaps that is so, but it is hard to see how GM benefits from selling a slightly larger number of cars while losing more money on each one. The only reasonable answer is that its inventory for many models is over 120 days and that its dealers are drowning in a sea of unsold units. At least those dealers make money though charging for service after the sale.
In the current economy, incentives are overrated as a way to prime the pump. Selling a $25 steak for $20 does not help a consumer who has to pay $10 for a loaf of bread and $3.75 for a tank of gas.
Everyone wants a shiny new car. That makes the prospects of an incentive depressing to most window shoppers. They are tempted to buy something that appears "cheap" until they realized that they still cannot afford it.
Incentives do have an unintended consequence that could hurt the financial system a couple of quarters out. Those tortured consumers who do risk buying a new vehicle may not be able to maintain their monthly car payments after that $5,000 cash back has run out. Buying gas and paying for a car are simply beyond the means of many citizens.
Car incentives may just turn out to be fool’s gold.
Douglas A. McIntyre
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