Lifted from comments to Calculated Risks aside on cash for clunkers. Spencer says:
I get so tired of seeing people evaluate the cash of clunkers and ignoring the impact on auto inventories. During the cash for clunkers auto and light truck inventories fell from 2.7 months of sales to1.6 months of sales — the norm is about 2 months.
Auto manufactures were not going to expand production with the high level of inventories. But after the I/S ratio fell below to 1.6 auto production jumped some one-third to one half — depending on which source you use. Crains Auto News has the one-third estimate that is not seasonally adjusted while the federal reserve has the almost 50% jump uses seasonally adjusted data.
To me, by eliminating the excess inventories the cash for clunkers was a primary determinate of the huge rebound in auto output in 2008-09 that in turn was a major factor in growth in the first year of the recovery.
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