'Clunkers' Was An 'Ingenious' Way to Coax Spending
By: The government's "Cash for Clunkers" program was "ingenious" because it coaxed wary consumers into re-leveraging their personal balance sheet, Doug Dachille, CEO of investment firm First Principles Capital Management told CNBC.
Under more traditional economic stimulus programs, consumers are typically sent checks. The hope is that they spend the money and stimulate the economy. But consumers may opt to use the money to pay a bill or put it in savings, diluting the benefit of the progam.
With the 'Clunkers' program, not only did consumers spend the money now, they also committed to future spending as they pay off the cost of the new vehicle.
"That way you actually got leveraged stimulus," Dachille said.
That spending is important because consumers are trying hard to limit their spending in this new climate.
"What people are realizing is that your spending now is not going to be driven not by extraordinary, one-time gains and your ability to borrow against those assets on your balance sheet,...your spending is going to be driven by what you are earning," Dachille said. "...You can no longer spend in excess of what you are earning."
- To hear the full interview with Doug Dachille, click here.
The lack of credit and the shock of last year's events has forged a new consumer attitude, Dachille said.
"All of some sudden in 2008, everything went bad, you lost your job, your house went down, the stock market went down," he said. "That changed consumer behavior, that changed investors' attitude toward risk."
In fact, Dachille feels attitudes on home ownership also have shifted, with consumers no longer viewing home ownership as an easy thing.
More from Consumer Nation:
- Give Up a Little Privacy, Get a Free Lunch
- Wal-Mart Brings a New Way to Pay Bills the Old Way
- Will Strong Back-to-School Sales Equal a Less Jolly Christmas
Questions? Comments? Email us at consumernation@cnbc.com
