The Herald Bulletin

March 29, 2010

Stimulus programs spurred business in 2009

Professor: Long-term effects remain to be seen

By Aleasha Sandley, Herald Bulletin Staff Writer

ANDERSON, Ind. — Federal government programs were the talk of the business world in 2009, from banks receiving funds to shore up lending to car dealers swamped with “Cash for Clunkers” deals.

Whether the programs will have a long-term effect on the economy remains to be seen, said Anderson University Associate Professor of Management Wendell Seaborne.

“I don’t know if we can make that judgment yet,” Seaborne said. “Short-term they did do some sales. I don’t know what the long-term impact will be. That’s probably true of about any of the programs instituted in the last couple years.”

One of the most widely used government programs associated with the federal stimulus package passed in 2009 was the Troubled Asset Relief Program, in which the U.S. Treasury bought shares of troubled banks to free up money for the banks to lend to consumers.

Seaborne said while TARP undoubtedly propped up banks while it was in effect, he could not tell what the long-term effect would be. Three banks with branches in Madison County received TARP funds, including Old National, MainSource and First Merchants.

Old National repurchased all the $100 million in preferred stock that was sold to the U.S. Treasury in December 2008, bank spokeswoman Kathy Schoettlin said. The bank also was the first to repurchase a warrant for its 813,008 shares of common stock, another phase of TARP.

As of early March, MainSource had not repaid any of the $57 million it received, and First Merchants still was waiting to determine when it could begin repaying its $116 million.

Treasury Secretary Tim Geithner said in a statement to Congress that one year after the institution of TARP, the financial impact to the country was expected to be $120 billion; when the program was announced, the impact was expected to top $550 billion.

“Access to credit is improving and the cost of borrowing for businesses, consumers, homeowners and state and local governments have fallen sharply,” Geithner said in his statement. “In addition, we have achieved this progress at much lower cost than anticipated. By encouraging private capital solutions rather than relying on public funds, the expected cost of stabilizing the financial system has fallen by more than $400 billion. We expect it will fall even further. And if Congress joins the President in adopting a Financial Crisis Responsibility Fee, Americans will not have to pay one cent for TARP.”

Geithner said the Treasury already had recovered two-thirds of TARP investments in banks and earned $17 billion in income from its investments.

Local car dealers also took advantage of government stimulus programs in 2009, with most of them participating in Cash for Clunkers. The program offered a rebate of up to $4,500 for consumers who traded in their gas-guzzlers for new, more fuel-efficient vehicles.

Dealers’ sales increased during Cash for Clunkers, but they had to deal with other problems associated with the program, including mountains of paperwork and sparse inventory.

“It’s so labor intensive and you’ve really got to stress your customers out by getting all of (the paperwork),” said Todd Castor, who was general sales manager at Daleville’s Sam Pierce Chevrolet when the Cash for Clunkers program ended in August. “We’re happy it was available to us; however, it was poorly administered, so it got a lot of us in a situation we don’t want to be in.”

Seaborne said Cash for Clunkers created a short-term infusion of spending but probably would have no lasting effect as auto sales dropped off after the program ended.

“I think they were hoping for something long-term,” he said. “We really don’t know that that’s been the case yet.”

According to the National Highway Traffic Safety Administration, 18,908 dealerships throughout the country participated in Cash for Clunkers for 690,114 rebate applications filed that resulted in 677,842 vouchers paid and 12,272 vouchers canceled. Total spent on the vouchers was $2.85 billion.

The new vehicles had an average rating of 24.9 miles per gallon, replacing the old vehicles with an average of 15.8 miles per gallon. Forty-nine percent of the new vehicles were manufactured domestically, and the program was estimated to have saved or created more than 60,000 jobs, according to the NHTSA.

Seaborne said he didn’t know whether the government would institute other such stimulus programs.

“I don’t see too much more coming out of Congress until we see the results of what we’ve already done,” he said.

Contact Aleasha Sandley: 640-4805,