Here comes the clunker hangover

Posted by: David Welch on September 24, 2009

Here comes the hangover from the cash for clunkers program. Recall that last month, the seasonally adjusted rate of car sales was 14.1 million vehicles. That was a banner month considering that sales rates for most months this year were around 10 million cars. For most of the decade, Americans were buying easily 16 million cars and trucks a year. But the economy tanked last year and we only bought 13.5 million. So the cash for clunkers program was a welcome boost for carmakers, parts companies and dealers.

Now comes a bit of payback. Edmunds.com predicts that September will have had a selling rate of 9.3 million vehicles and J.D. power says it will be 9.2 million vehicles. That’s a 41% drop from August. That means that some buyers who would have bought this month just bought last month instead. In a recent interview, General Motors CEO Fritz Henderson told me that we would see some payback for the cash for clunkers program, but he doesn’t think it will last long. With the economy showing signs of life, we may see sales slowly inch back up once the clunker hangover ends.

Does that mean the clunker program was a failure? Not really. But in the end it will have added a modest 7% boost to sales for a dismal year. It helped carmakers as some of them called employees back to work to rebuild inventory. If car sales really start to rise over the next few months, it won’t be due to the clunker program. It will be due to the Obama Administration’s other stimulus moves and because the U.S. economy is starting to bounce back.

Reader Comments

williambanzai7

September 24, 2009 7:44 PM

Actually it was a huge success when you consider its real purpose--providing cover for feckless congressmen returning to their districts for summer recess.

What will they do for winter recess?

Paul (Vw)

September 24, 2009 11:28 PM

>>> Does that mean the clunker program was a failure? Not really.

If anything, it was a great "learning moment." If the government has difficulty running something as simple as Cash-for-Clunkers, perhaps we should think twice about its ability to run our health care.

http://news.yahoo.com/s/ap/20090910/ap_on_re_us/us_cash_for_clunkers

>>> Transportation Secretary Ray LaHood says the government has approved $1.22 billion in reimbursements to car dealers for sales under the Cash for Clunkers program...The rebates led to more than 690,000 new car sales at a taxpayer cost of $2.88 billion.

That sounds like a boatload of money was lost on overhead? $2.88b-$1.22b=$1.66b? I think have to be reading this wrong. Can you provide figures on what the total cost to taxpayers was, how much was actually sent to dealers, how many cars were sold through the program, and how much was spent on gov't overhead? (or point me to a BW article which has it?--thanks!)

Wearsunscreen

September 24, 2009 11:40 PM

Mr. Welch have you crossed up per year data with per month? I'm not following your opening that well, but I find the later 2/3rds informative.

Commie Stooge

September 25, 2009 7:10 AM

Monday morning, i'm bringing in my 1999 Dodge Neon (with just 71K on the odometer) in for service to remove the gas tank; to replace the emissions hoses because the "Service Engine" light has been on for days.
For the past year, every time a rubber hose breaks on my aging Neon; the engine light goes on, my mechanic checks the codes and replaces a hose (or two).
But now the easy hoses have been replaced, and the VAC system hoses (inaccessible) at the gas tank have to be changed; leading to a major repair job.
As the car ages, I'm used to replacing tires, brakes, shocks, etc.
But now I have to pay big bucks to keep the car in emissions compliance.
I've read that there are millions of drivers who use their cars with the light on because they can't afford to fix their aging cars.

JD

September 25, 2009 8:28 AM

"If car sales really start to rise over the next few months, it won’t be due to the clunker program. It will be due to the Obama Administration’s other stimulus moves and because the U.S. economy is starting to bounce back."

...And conversely, if sales don't rise much over the next few months it will be due to the failure of the economic stimulus strategy for this economy. Consumers are still very cautious. Those who could buy already bought.

Schmeltz

September 25, 2009 8:47 AM

I agree with your statements David, but looking at the numbers another way, we in truth have to consider August as an anomoly for the year due to the C4C program. If we figure the SAAR this year is averaging 10 million, and September totals 9.2 million, that's just an 8% drop from the average of the year. August will simply goose the average a bit for the year and that's a good thing. I'm not a huge fan of gov't. give-aways, but the C4C seems to have been one of those rare exceptions that has accomplished some of its pre-set goals, and got some people to at least start shopping again as well.

BVOASIS

September 25, 2009 9:44 AM

Nobody goes to buy car every year. Government representatives and Corporations still are thinking about short term band aid quick fix cash flow benefit. It's a waste of money that could have used for long term and real growth solutions.

Earthling

September 25, 2009 9:51 AM

What about the hangover our children and grandchildren will have repaying the government debt from another wasteful spending program?

Squeezebox

September 25, 2009 10:51 AM

I think one of the goals of C4C was to get cash in the coffers of carmakers so that they could keep going. Before C4C, ALL manufacturers were suffocating on unsold inventory. C4C cleared much of it, allowing manufactureres to start making and selling 2010 models. If even with prudent inventory management the cars still stack up again, you can look for C4C part II next August.

GOOD GRIEF!

September 25, 2009 11:50 AM

Max Factor couldn't possibly produce enough 'lipschtick' to huckster Detroit's tired old engineering. Sure, lots of snazzy cosmetics, but underneath, WHERE IS THE RELIABILITY, DEPENDABILITY that we all HAVE BEEN getting with German and Japanese vehicles? Our two Toyotas are 4 and 8 years old, and have had 1 problem - the radio antenna in the rear window when bad after 7 years - took the moronic dealer 5 tries (5 visits, which proved to be our very LAST, with a Toyota Dealer) to correct the simple replacement. Nevertheless, both Toyotas are good for another 10-15 years! We'll be looking for GIANT improvements, across the board in vehicles, before we blow $25-35k again .... rather use OUR money for exciting travel, than keeping up with bozo, next door.

JB

September 25, 2009 11:52 AM

With this program, and the clauses that haven't been finalized, wouldn't be funny IF all these people who picked up a New car under these pretenses received a 1099 on Jan 1,2010 for the free $4,000?

Payback

September 25, 2009 1:44 PM

I dislike seeing how bad it is going to be for our children in the future. Unless some parents are raising a dimwit whose only aspiration will be the greeter at Walmart.

The next generation is going to be successful. Middle class children are excelling in both math and science the cornerstones for advancing society. And at least the clunkers program made this month's buyer decide quickfast the whiners at the car dealers were annoying also.

Mike

September 25, 2009 2:36 PM

As economic stimulus this was probably not such a good idea. As a way to improve the average fuel economy of the cars we drive it was probably OK with respect to that.

Recessions are a great opportunity to change the behavior of people. The clunker program could be resurrected with MUCH stricter limits on the type of car you can buy. Sometimes the difference between a clunker and a new car that qualified was as little as 4 mpg. Raise that up to at least 20 and that is a longer term program i can get behind as good public policy.

Mike

September 25, 2009 3:09 PM

I think its a stretch to say that if car sales really start to rise over the next few months it will be due to the Obama Administration’s other stimulus moves. If fact its false.... None of the stimulus moves have done anything yet... the money hasn't been spent... the system is not fixed.... the economy is recovering due to the resilience of the American people, not due to Obama's weak "stimulus" plan.

Rffrydr

September 27, 2009 1:14 PM

Yes, easy to knck the government for all our problems--or just knock them for the hell of it.

Fact is C4C sparked the last 10% in the SP rally adding 1-2 trillion capacity to your M&A, capital raisings, debt buybacks, mortgage reworks etc.. Fact is C4C was first and only "stimulus" that actually supported SPENDING. As such it showed that we still can spend. It also tied broad networks of of credit and production that payoff HERE (not in chinese toys or textiles). Fact is it gave a big boost to all of our municipalities on the ropes where the dealer is often the biggest contributor--this extends to the local paper, the local rotary club and down to the local little league.

The sales pulled forward argument is way overplayed. Clunker owners are NOT new car buyers. They came, they bought--many with cash. That's hoarded money back into the economy that could have easily sat in box all the way through the cycle.

The engergy savings is real--it goes directly to the bottom line: foreign oil imports, and social well being (pollution from one clunker can equal 100 cars).

Most of all it provides the template for how we will get out of this malaise by squaring that proverbial circle: investing to save. We'll see more of this across the board.

Meanwhile scrappage rates alone will sustain profitable production going forward. Sept. numbers are going to be clouded by lack of inventory as much as forward sales.

It's time this country get behind something. The "me" generation just doesn't cut it anymore.

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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