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Cash for Clunkers: Epic Win?

Charles Krome
by Charles Krome
July 31, 2009

Well, if the goal of the government's Car Allowance Rebate System was to sell more new cars, I'm ready to write those fateful words: mission accomplished.

The industry is in a state of shock today, following the sudden realization that the CARS program is might already be out of cash with plenty more clunkers waiting to be turned in. There's a lot still up in the air at this stage, but, through close of business on Wednesday, some 22,782 vehicles had been sold through the program, relying on $96 million in clunker money.

Now, based on a survey of 2,000 dealers, the National Automobile Dealers Association is saying that there have been an average of 13 CARS transactions per store, and there are some 23,000 dealerships taking part. When you do the math here, that would come out to 299,000 vehicles '” about 50,000 more than the government was hoping to sell. If those numbers hold up, it means that the program, expected to last a few months, is out of money after a few days.

And speaking of numbers, the comparison between June sales and the first few days of cash for clunkers really puts the situation in perspective. Total sales last month were nearly 860,000, which means daily sales of about 28,666 (unadjusted for "selling days"). If we say that the CARS program has been running for five days (to make the math easy), we get a daily sales rate of 59,800. Extrapolated out over a full year, this would be an annual sales rate of nearly 22 million '” a record number.

So, is everything coming up roses for the auto industry? Well, I still have some doubts.

Let's not lose track of what's getting people into dealerships: incredibly big discounts, especially for people who can combine clunker cash with manufacturer and/or dealer incentives. Some examples: Ford is currently offering $1,500 cash back on its lineup, which means a consumer who also qualifies for a CARS discount could get $6,000 off the new Taurus. The GM Summer Sale Event will, in theory, end today, but while it overlapped with CARS, a qualifying customer could have gotten $8,500 off of a Pontiac G6 Sedan. Chrysler was fully matching the $4,500 maximum clunker voucher, offering $9,000 off the PT Cruiser. And it's not just the "domestics" that are ponying up extra cash. Over at Toyota, for example, a customer could get more than $4,000 in pre-clunker savings on the Sienna minivan, for an overall discount of $8,500+.

The thing is, it was only six or seven years ago '” I know, that's like 40 or 50 years in the industry '” that General Motors was being lambasted for huge incentives and fighting a desperate rearguard action to avoid becoming known as the Wal-Mart of automakers. Critics and execs alike worried that consumers would only think of GM as a bargain-basement seller and only purchase based on price, not the quality of the vehicles. There's certainly a valid concern that CARS is setting up the entire industry for the same kind of problems.

On the other hand, it's blindingly obvious that there was a bit more pent-up demand for autos than most people thought. The past few days haven't been solely about trading clunkers for cash; even customers without qualifying trade-ins are jumping back into the market, with anecdotal evidence showing non-CARS car sales increasing just as much, if not more, than clunker-based transactions.

So, assuming CARS actually is out of cash and has achieved its sales-figure goals, what's next? I say the government should track down another billion or two to reload. Despite my worries over pricing issues, it's more important to overcome the general economic worries that are preventing people from shopping for new cars and trucks.

Plus, it's a nice change of pace when the industry has to worry about a program working too well, instead of the opposite.


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