Leadership Lessons from Cash for Clunkers
Without diving too deeply into a mini controversy from last week, let me just enlighten you with some quick facts:
- Edmunds.com estimated that the recent Cash for Clunkers program cost US taxpayers about $24,000 per incremental vehicle sold;
- The chief economist of the National Automobile Dealers Association (NADA) responded that the cost of each incremental vehicle sold was actually $4,587;
- For both analyses, an incremental vehicle sold is a sale that would not otherwise have occurred without the government’s CARS program.
Whenever I am faced with two strikingly different opinions about something, I like to follow the money. In other words: Whose opinion enriches their goals more?
A few more quick facts:
- Edmunds, a privately-owned company that has been providing mostly accurate analysis of the automotive industry for more than 43 years, reported their findings days before the NADA reported theirs;
- The White House blasted Edmunds.com, because Edmunds.com disagreed with the official government assessment of the program and painted the program as costly;
- NADA, the main lobbying arm for new car dealers in the US, agreed with the official government assessment and even went so far as to call Edmunds’ analysis “fundamentally flawed.”
Hmmm, lobbyists who call on the White House and other government officials to curry favor for their car dealer clients agree with the White House and blast an independent company who disagrees with them?
Follow the Money
More than just politics as usual, it’s actually quite disappointing that the NADA would, in our opinion, sell its integrity for the sake of a program that even the NADA’s dealer-members will admit (privately) did little to move incremental units over the long term.
In fact, dealers we’ve surveyed point out that their website traffic – which they tell us is a great indicator of consumer interest in new cars – dropped more than 30% in September and October versus the same period in 2008. (For a point-of-reference: Clunker sales ended in August.) To these dealers, this means that the CARS program “pulled ahead” units from September and beyond into July and August.
The NADA’s assessment of the program assumes no sales were pulled ahead. Not one. Zero. None. Nada (pun intended).
In their chief economist’s view, the NADA claims that auto sales for July and August would have been around 1,600,000 units without Clunkers. Actual sales for those two months totaled 2,253,963 units, leaving a difference of 653,963 units. (So far we agree with the NADA.) Divide the CARS’ $3 billion cost to taxpayers by 653,963 and you get $4,587 per car. Simple, right?
Stop Peeing on Me and Telling Me it’s Raining
There cannot be anyone with even basic macroeconomic training who buys into this simpleton analysis. As any good economist would tell you, programs like Cash for Clunkers do not operate in a vacuum. There are economic truths at work that dictate you cannot inject a significant variable (in this case the taxpayers’ $3,500 – $4,500 per car) that significantly drives up current demand for a capital good and not have some impact on future demand for that good.
Are we to believe that not one of the six hundred fifty-three thousand, nine hundred sixty-three incremental units sold in July and August would ever have been sold if not for the CARS program? Well, that’s exactly what the NADA is saying with their transparently disappointing attempt at influencing the White House, the congress and taxpayers who might be asked to support another Clunkers program in 2010.
While the Edmunds.com analysis may have overestimated the number of vehicles pulled ahead into July and August, at least they didn’t try to tell us that EVERY incremental vehicle sold over those two months was pulled ahead from a future month.
Abusing One’s Leadership Role is Never a Good Thing
This is why integrity in leadership is critical. How can we believe anything the NADA reports after this? Their objectivity, in our opinion, is nonexistent. They seem as comical as the NRA arguing for bazookas in every home or PETA rallying against fat people. They’ve quickly gone from being a respectable business organization to becoming just another special interest group. They are now a caricature of their former self.
They’ve forgotten that unlike true special interest groups, the NADA held a true leadership role in the automotive community. They served the best short- and long-term interests of their dealer-members. Now, they’ve broken the trust of anyone with a brain, causing us to question the veracity of all future pronouncements.
The leadership lesson here is simple: When given a position of leadership – whether you’re the President of the United States or the chief economist for a lobbying organization – you have a duty to lead with integrity. Abusing the trust granted to you on the basis of your position assures that you will not be trusted in the future. Your subordinates, constituents or members are not dumb, and when they know you’ve stretched the truth to fit your agenda in the past, they will begin to question the motives of your future actions, and they will no longer take you at your word.