Posted by: David Kiley on July 29, 2009
http://The controversial and much debated “Cash For Clunkers” bill is having the desired effect of boosting car sales, according to analysts and a few auto executives.
Edmunds.com, the auto buying site, predicts that sales in July will be up 10% from June despite the fact that the program was only in effect the last week of the month. J.D. Power and Associates also predicts a bump, as well, predicting sales going from an annual selling rate of 9.7 million in June to an annualized rate of 10 million.
But executives at two automakers who asked not to be identified said their internal tracking shows a bigger bump from “Clunkers” putting the selling rate in July at closer to 11 million. That would still be a decline from the 12.5 million selling rate last July, but a healthy boost from the doldrums of the first half of the year, which saw the industry selling at an annualize rate of 9.6 million.
Automakers got a jump on attracting consumers to the program even before the government began accepting applications for each rebate. Hyundai dealers, for example, for about two weeks had been giving customers the government rebate they qualified for—advancing the money—and then put through the transaction to the Feds starting July 24. Other automakers did likewise.
J.D. Power’s Gary Dilts said that sales from “Clunkers” may under-deliver on expectations because of confusion on the part of consumers about what cars qualify for the program. “However, there is potential for increased sales in the short term as a result of select OEMs boosting incentives to match the program,” said Dilts.
Congress only authorized $1 billion to fund the program which grants consumers up to $4,500 for older vehicles not worth much money if they trade them in to buy new vehicles. Legislators are expected to consider additional funding in the Fall, so the performance of the first phase of the program is being closely watched.
The “Clunkers” bill has cut both ways this years on auto sales. Since it was first mentioned by President Obama last Spring, automakers believe it has kept some people out of the market to buy a new vehicle until they knew what the specifics of the bill would be. Now that it’s out, some percentage of sales in July and August are bound to be vehicle buyers who would have bought a new set of wheels in the last three or four months anyway, but waited. Edmunds.com says that the $1 billion program will actually only add 50,000 new vehicle sales that might not have materialized if the Clunkers program wasn’t enacted.
The Recession and dramatic falloff in auto sales drove both General Motors and Chrysler into Chapter 11 Bankruptcy, and has created unprecedented operating losses at Toyota. It also helped to drive Porsche SE into the arms of Volkswagen AG this month.
The success of Clunkers to boost annual sales is critical to Detroit automakers. GM and Chrysler have restructured under bankruptcy to break even when the industry is at a 10 million selling rate. So, those companies need a rebound to get into the black. Ford has been hammering away at its costs to lower its break-even point. If sales over-deliver on forecasts next year—say, going to 13 million up from the 10 million or so we expect this year on the whole—the Detroit automakers stand to make a lot of profit they haven’t seen in years.