Updated with news on House vote to extend program.
The "cash for clunkers" program is perhaps the single most successful government stimulus to date. Incredible public response to the program may have drained its allotted $1 billion budget in just one week.
The House rushed to extend "cash for clunkers" Friday, voting 316 to 109 to shift $2 billion in emergency funding from the $787 billion economic stimulus plan to the popular program.
Because the measure was placed on the suspension calendar, two-thirds of lawmakers had to vote extend it. At 8:45 a.m. Friday, GM dealers were notified that the "CARS" claims submission Web site would be open and that all claims submitted Friday would be honored.
"Cash for clunkers" offers as much as $4,500 to consumers who trade in old vehicles to buy more fuel-efficient alternatives. The program began July 24, fueling the already revved-up auto industry.
The government's popular "cash for clunkers" program is running out of money as car shoppers flock to dealerships to take advantage of the rebates.
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The Bureau of Economic Analysis released a report this morning revealing that the automotive industry is helping to contribute to the "big picture" recovery. Motor vehicle output helped to boost gross domestic product (GDP), adding 0.20% to the second quarter change in GDP. In the first quarter, these same sales had subtracted 1.69% from results.
The Obama administration will now have to dig deep to sustain the success of the "cash for clunkers" program. High deficits have concerned investors both at home and abroad, and government officials will have to locate the additional billions that will be required to keep "cash for clunkers" from stalling.
While "cash for clunkers" may be the icing on the cake, automotive industry investors have been reaping the benefits of this recovering sector throughout 2009. The auto parts suppliers that make up the majority of FSAVX have risen significantly on the back of new energy initiatives and an increasing demand from manufacturers. FSAVX top holdings such as
have improved dramatically in 2009.
, the world's largest dealership chain, reported better-than-expected earnings this morning with an optimistic outlook to the future. CEO Mike Jackson noted that the "cash for clunkers" program would likely help to boost sales in the future.
"Cash for clunkers" may sound simple in theory, but the execution of the program has presented complexities for dealers and customers alike. In order to participate in the program, dealerships must sign up and receive an account number. Each transaction requires nearly a dozen documents to be submitted. Dealers are supposed to receive their "cash for clunkers" funds directly through their electronic accounts.
The current problem for many of these dealers is that the incredible demand has made filing the necessary documents and receiving payments difficult. "I haven't spoken to a single dealer who has actually gotten cash electronically yet," notes Richard King, the leading Buick dealer in Massachusetts's Berkshire County. "It took us four days to actually access the program's reporting site, and we have half a dozen orders that we are currently trying to process."
King is quick to note, however, that while the cash for clunkers program has helped to boost sales, the real recovery started much earlier. "June was our best month in almost two years," King notes, "July is shaping up to be a great month as well." King hopes that the documentation issues and technological issues "get cleared up shortly."
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Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.
Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.