Cash For Clunkers Bringing Back Car Buyers

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.

Reader Comments

Jeff Kaminski

July 29, 2009 11:08 PM

I like the way you think. I have a 1999 Buick regal that I want to trade in for a new car but it is not eligible because it gets a combined 21mpg. The new car I want gets 32mpg so I am having second thoughts because how much money for a trade-in allowance is a dealer going to give me for a car that is 10 years old.

Disgruntled

July 30, 2009 9:38 AM

I like the idea of 'Clunkers for Cash'. I like it so much, I think we need to bring it into the private sector. 'Old useless employees for Cost-Savings' (I would call it). We get rid of the overpaid under achieving old farts, and substitute them for the young educated go-getters that are starting families and need jobs. They'll cost less, and provide more. Hey, that's gotta help out our economy, right?

GM Daughter

July 30, 2009 10:08 AM

Cash for Clunkers does two things: 1. it clears unsold inventory off the dealers' lots and 2. it restarts the car factories, saving jobs. It may also create temporary jobs for car killers.

Old Fart

July 30, 2009 8:24 PM

Hey Disgruntled...guess what?

Your so-called "young educated..." brown nosers that have been brought up by pampering parents aren't worth a shit. Do you know how to spell W-O-R-K?

Was gonna go buy a Ford

July 30, 2009 8:47 PM

noooooooo... I was gonna trade in my clunker and by a new Ford Fusion Hybrid when I got my next paycheck in 2 weeks. Damn it. Maybe I can see what I can do tomorrow.

Damian Palmares

July 30, 2009 9:33 PM

It was a dumb idea anyways...well, actually the concept is good but they should have followed the EU model, the only EU model we should follow by the way. With the restrictions and 1 billion dollars for reimbursement....are you kidding me. 18 mpg and they want two more mpg gained...useless. They should have put five to ten billion, said no restrictions except years on vehicle and then they might be able to make the money do something.

Damian Palmares

July 30, 2009 9:38 PM

That's U.S. politicians for ya Jeff, limiting it to 18mpg....if we weren't in the economic shape we're in now, that may be a good idea but they don't want to spend money to help the consumer in a way that would actually boost the economy...wait maybe that's just our government, lets spend trillions for a government run health care that will run like the DMV...ummmm...no thanks. Spend our money wisely and create jobs not deficits.

Disgruntled at Disgruntled!

July 30, 2009 11:17 PM

Hey! Us "old farts" have FORGOTTEN more about people, work ethic and sustainable profit than young pups will grasp until they've paid their dues. Your post proves that. Let's trade ten of those entitlement-minded kids AND their fawning 28-year-old middle managers one seasoned veteran! We could light cigars with the 4500.00 and still come out ahead.

David

July 31, 2009 9:53 AM

This program is the only thing working immediately and effectively out of all the stimulus items put forward. Instead of shutting it down the FED should allocate say another $2BLN to it right away. How about that for a rebound?

Got one

August 2, 2009 1:34 PM

Program is back up and running. Bought a car yesterday. No big deal on the paperwork if you have done your homework. Bring your proof of insurance, other documents, and it works. The dealerships were busy (especially Ford and Chev, did not check at Chrysler, Honda and Toyota not so busy). Bought a car made in Kansas City, 80% US content. Was not planning on buying a car for another year, but the government stimulated me!

Bought one

August 6, 2009 9:48 AM

Yes, I bought a new car under the plan. No, I would not have bought a new car. Can not remember the last time I bought a new car--go for a used one which is a far better value. My experience--every foreign dealer in my area was up and ready to go when the July1st start-up date rolled around. They were ready to trust the government and put their money into the cars and they completed deals. Not Ford, Dodge, or Chevy in my area. One American sales manager did not know how to even figure out the EPA site to get combined MPG. I showed him.Wonder why the money went so fast--the foreign dealers had already sold the cars on the faith in our government and just had to submit the eligible deals completed the previous three weeks. My Dodge dealer waited until July 28 to call me in to complete my deal. First new car in might be 20 years. Nice car-Dodge Caliber.

terry kunes

August 8, 2009 10:20 AM

We have a strange situation here. My wife bought a car under the clunker program in at a Rhinelander WI Toyota dealer. They required your title and full payment for the new vehicle, and you had to leave your "clunker" with them until they got a "Voucher approval from the government". They have about 40 people waiting for fully paid cars, and they surrendered their old car for over a week, and they "don't know how long it will take". I couldn't believe my wife agreed to this, and paid them in full?????? along with some 30 other people.

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