Tom Hayes: CNNMoney.com gets "Cash for Clunkers" wrong

You'd expect an author at CNNMoney.com to understand the relationship between cashflow and business success.  You'd expect an editor to send this article back to re-write either for more research or more objectivity.  Here was the basis of Peter Valdes-Dapena's misguided assessment:

"...majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com"

So? This isn't news, and it misses the point of the Cash for Clunkers initiative.

Valdes-Dapena and/or his editors may think selling cars sooner rather than later is a valid reason to criticize the program, but as any businessman can tell you: success in business is about cash flow. Any retail operation needs to keep their stock turning over. At a time when the inventory was sitting idle on the lots this program provided a much needed infusion, enabling dealers to pay staff, utilities, creditors, and suppliers.

Did the Cash for Clunkers program solve the economic crisis? Of course not.  Nor was it intended to. The goal was simple: turn over inventory in one segment of the industry - to keep dealerships from failing in huge numbers before the manufacturers could recover. Save some jobs and hopefully avert a catastrophic spread of deterioration in the auto industry that would further delay economic recovery.

The article may fool a person with no entrepreneurial experience, but it reflects either a shallow grasp of money and business or a thinly-veiled attack on the government's attempt to avert a breakdown in the delivery mechanism of an industry it was actively seeking to save - without proposing any alternative that might have been even marginally effective.

The public may think "Cash for Clunkers" was as simple as just selling cars, the author obviously wants to, but the reality is much subtler. Edmunds didn't surprise anybody (except maybe CNNMoney.com staff) with the news that one of the primary effects was to accelerate the decisions and purchases:

In business, my friends, timing is everything.

 
Thomas Hayes is an entrepreneur, journalist, and political analyst who contributes regularly to a host of web sites on topics ranging from economics and politics to culture and community.

Tom Hayes: Another glimmer of hope for the economy

The health care sector continues to add jobs so investor confidence during the past month led the monthly Economic Recovery Reality Index (ERRI) up a modest 4.76 points over July numbers to 16.03 for August. Unemployment dipped slightly and the increase in the number of “discouraged” workers slowed, according to the U.S. Bureau of Labor Statistics - but as with prior economic recessions and depressions employment changes are once again trailing the other economic indicators:

The small ERRI gain shows Wall Street's optimism hasn't yet reached most other streets; it will take some time for average Americans to feel - or believe - that this long subtle assault that started with obscure financial "devices" has eased and real recovery has begun. The problem, we know now, was not sub-prime lending, which can and does help people, but aggressive and deliberately predatory sub-prime lending from companies and CEOs who thought they were immune to the risks in an essentially unregulated environment.

The ERRI uses a hypothetical, indexed fund (similar in some ways to a mutual fund) to measure investor confidence across nearly a dozen sectors of the economy, but until jobs and wages show sustained improvements you won't see it move back closer to (or above) the 100 mark no matter how fast stock prices drive the stock/investment component higher.

"Equity investments are volatile, particularly when not carefully diversified and monitored; the ERRI would have shown even less improvement had closing prices from even a day sooner been utilized in the calculations (since that would have reduced the 'ERRI fund' improvement.)"

The modest gain in the August ERRI figures reflect both equity prices as of the close of the NYSE on Friday, August 7th and data released in the monthly update/estimate from the Department of Labor earlier the same day combined using a new calculation. Without the on-going hiring in health care and the slight turn-around in unemployment rate even the robust gains in various stock markets would not have had much impact on the index.

Stimulus plan: Invest in our country

It’s small businesses that will put people back to work; that’s how we’re going to get this country back on its feet. It’s entrepreneurs and small business owners who respond with enthusiasm that are key. Big, established, "trusted" companies dug this hole by defining success in terms of short-term profits on their bottom line that do little if anything to protect American jobs or the well-being of their employees.

When we see bulldozers and excavators moving dirt for new construction, when we see trucks hauling instead of sitting idle at auction sites, then we'll know things are turning around.

While Bush was pushing privatized retirement plans, we were all being set up to fund Wall Street bonuses. We need lenders to play fair, not slap new fees and payments on consumers. More regulation of lending practices, not less, is critical to our economic health.

Bottom line: The new administration needs to reverse the trend of layoffs and plant closures; our government needs to work for the people by rebuilding economy and the American Dream - by putting Americans back to work.

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