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If you listen to the mainstream media, Obama’s Cash for Clunkers stimulus program is a huge success. Americans burned through the initial $1 billion allocation in no time, so the Democrat-controlled Congress quickly authorized an additional $2 billion.
The Consumer Assistance to Recycle and Save (CARS) program, the official name for Cash for Clunkers, offers consumers up to $4,500 to trade in gas guzzlers for new cars or trucks with better efficiency.
No question, Americans bought a lot of new cars last week, but don’t think for a minute that this is a good thing. Here’s why.
New Production? I Don’t Think So. “Businesses across the country — from small auto dealerships and suppliers to large auto manufacturers — are putting people back to work as a result of this program,” Obama said.
WRONG! General Motors’ inventory is currently at 466,000 vehicles, roughly a 76-day supply. The industry norm is around 60 days, so the ailing carmakers are unlikely to ramp up production. Cash for Clunkers is going to do nothing but eat up some of the already bloated auto inventory.
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| The “Cash for Clunkers” program is going to have little impact on bloated auto inventories. |
Voodoo Economics. Any time government starts giving away money; it invariably ends up taking money from one group of Americans and transferring it to another group. The Cash for Clunkers program is merely transferring money from one taxpayer’s pocket to someone else’s.
Worse yet, I suspect that a lot of people getting this government money would have bought new cars anyway. All this program is doing is pulling in sales from the near future into this current quarter.
Waste, Waste, Waste. One of the requirements of the Cash for Clunkers program is that all used cars traded in must be scrapped and parts like the engine and drive train destroyed.
That does two bad things: (1) People are junking cars that are still in good working order and (2) the auto-parts market is going to be flooded with inventory. Car dealers may be happy, but the auto-parts industry is going will be badly hurt by this program.
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Doling Out Government Largess. What the Obama administration is doing is picking and choosing what industries it wants to bail out with free government money.
A few months ago, Hustler magazine publisher Larry Flynt and Joe Francis of Girls Gone Wild asked Congress for $5 billion to bail out the ailing adult-entertainment industry. According to Flynt and Francis, adult DVD sales and rentals dropped 22 percent last year, and they felt they were just as entitled as AIG or General Motors for a free government hand out.
I’m not sure those two clowns seriously expected to get any money, but it shows that the Obama administration is picking and choosing what industries to bail out. Why not the hotel business? Restaurants? Clothing stores?
Stop Spending! One of my favorite childhood shows was The Beverly Hillbillies, and I remember Granny Clampett watching a cowboy western on TV and being amazed at what she called “all day six-shooters” or guns that never ran out of bullets no matter how many times you shot it.
The Obama administration has the fiscal equivalent of all day six-shooters because it seems to think that there is no limit to how much money it can spend on bailouts, stimulus spending, socialized health care, Cash for Clunkers … where does it end?
Sadly, I see no end to the runaway spending, and with a projected $1.7 TRILLION annual deficit, the hole we are digging for ourselves keeps getting deeper.
Big Help … for Asian Automakers. Americans bought 184,304 new vehicles last week, but according to the U.S. Department of Transportation, more than half of the sales were for foreign cars: Mainly Toyota, Honda, Nissan, and Hyundai.
The biggest sellers were the Toyota Corolla, the Ford Focus, the Honda Civic, and Toyota’s Prius and Camry.
I’m sure General Motors, Ford, and Chrysler appreciate the extra business, but Obama helped the Japanese carmakers just as much.
In fact, if you felt inclined to invest in an automaker to profit from this temporary sales boost, I’d highly recommend Toyota (TM) or Honda (HMC) instead.
Both Honda and Toyota are very close to their 52-week highs, proving that they’ve fared much better than American automakers.
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| Toyota’s auto sales in China jumped 70 percent in July. |
The reason those two Japanese automakers have done so well is the big business they’ve been doing in China.
The Chinese Association of Automobile Manufacturers just reported that passenger car sales in China jumped by 70 percent in July. That’s right — 70 stinking percent!
That’s on top of a 47 percent increase in May and a 48 percent increase in June.
Toyota is knocking ‘em dead in China. Last week, Toyota reported that its sales in China increased by 35 percent in July from a year earlier to 63,700 vehicles.
Thanks to the Chinese boost, Toyota has sold 348,100 vehicles so far this year, a 5 percent rise from the same period last year, and now expects to exceed last year’s sales level of 585,000 vehicles by a wide margin.
I’m not suggesting that you rush out and buy Toyota stock. In fact, neither I nor my Asia Stock Alert subscribers own it.
What I am trying to tell you is the one critical question you have to ask of every stock you already own or are thinking about owning is: “What is the company’s China strategy?”
Going forward, just about every business you can think of is either going to make a bundle from selling to the Chinese or get slaughtered by lower-cost Chinese competition.
Toyota gets it. Yum Brands (YUM) gets it. Tiffany’s (TIF) and Coach (COH) get it. As does Fuel Tech (FTEK), Las Vegas Sands (LVS), Apple (AAPL), Scientific Games (SGMS), Philip Morris (PM), Procter & Gamble (PG), and hundreds of other U.S. companies.
But for every American company that gets it, there are even more American companies that don’t — such as Dell (DELL) and Motorola (MOT) — and those are the companies that you need to avoid like the plague.
Regards,
Tony
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Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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When do you see gold move at least to the adjusted inflated price?