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Cash for Clunkers Was Fun While It Lasted, But Here Comes the 'Hangover'

Here at The Ticker, we took a mixed view of the government's Cash for Clunkers program.

On the one hand, it has been the one aspect of the $787 billion stimulus that has "worked," and by that we mean: It has been popular, it has happened right now, not months from now, and it helped struggling auto dealers and automakers burn down inventory.

Dave Cole, chairman of the Center for Automotive Research, told us on Wednesday that his research showed that the Cash for Clunkers program was responsible for saving about 39,000 jobs, a lot more than he expected.

Okay, as we're still in the Great Recession, there is some value in maintaining jobs, however it's done.

On the other hand: Because the program was about burning down inventory, there was very little upstream benefit, meaning there will be almost no long-term production increases for parts-makers and the like. There is a good chance it only "pulled forward" future sales, meaning it was used by people who were going to buy a new car anyway in the next year or so. Therefore, over the long run, it may have added no net new car sales.

In short, Cash for Clunkers was a Red Bull jolt of caffeine into a moribund market.

And, as with such a rush, there is bound to be a hangover, says one analyst.

"The 'Cash For Clunkers' party is over with the ending of the taxpayer funded incentive, which the government said accounted for 690,000 sales, and now the auto industry is likely to experience a painful hangover," writes Jack Sayer, managing partner of Sayer Partners, an automotive consultancy.

"Most analysts anticipate a steep decline in sales in coming weeks based upon a significant drop in 'purchase intent' on the Edmunds.com Web site," Sayer writes in a research note out yesterday.

The Edmunds.com site is a valuable tool to track how potential car buyers are thinking about their situation and the market.

Edmunds.com reports that current "purchase intent" of its users is down 50 percent from the middle of the Cash for Clunkers program -- no surprise there -- but tellingly, is down 11 percent from June, before the program started.

That suggests that Cash for Clunkers took 11 percent of the potential new car buyers out of the market for the foreseeable future, lowering sales in the coming months.

This piece on CNN.com has dealers saying what Sayer said. Edmunds.com predicts a 40 percent fall-off in sales, returning them to May levels, which won't get the Big Three up to the 10 million-vehicles-sold level they need to hit to get through this year. Even with the benefit of government-backed bankruptcy.

"I think you're going to be able to shoot a cannon through here and not hurt anybody," Portland, Ore., auto dealer Edward Tonkin says in the CNN story, referring to his show room.

And don't forget the unanticipated consequences of the Cash for Clunkers program: the death (literally) of hundreds of thousands of acceptable used cars, which would have been purchased by people who can't afford a new car.

"Oh, and did I mention," Sayer concludes, "since all the 'clunkers' had to be destroyed, the used car market is missing about 500,000 vehicles. Good luck trying to find a decent 4-5 year old car."

-- Frank Ahrens
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autos hangover

By Frank Ahrens  |  August 28, 2009; 2:39 PM ET
Categories:  The Ticker  | Tags: cash for clunkers  
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Comments

Investigate, assign effects to proper causes and analize the mass of common errors. Society is the guardian, not the giver. maybe if they give the stuff away. Forget it.

Posted by: Dermitt | August 28, 2009 3:43 PM | Report abuse

"Good luck trying to find a decent 4-5 year old car."
I doubt that many 4-5 year old cars were turned in under the program. More likely 9-15 year old fuel inefficient suv's, trucks and vans whose times have passed in this current era.

Posted by: pj09 | August 28, 2009 6:41 PM | Report abuse

so if you have two or more clunkers at your house you cannot trade both of them for one car. The program is for one per
person.


Jhenry
Blogger
www.cashforclunkersfacts.info
http://www.cashforclunkersfacts.info

Posted by: jhenry2808 | August 28, 2009 11:42 PM | Report abuse

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