The good news, despite the Automotive News [sub] “Cash For Clunker Chaos” subhead, is that none of the automakers are completely out of cars. Regardless, clunkermania clearly took almost all of the OEMs by surprise. In July, Chrysler’s inventory reportedly plummeted from 71 days supply to 30, a huge reversal from the not-so-long-ago days of sales banks and channel-stuffing. But perhaps the biggest surprise is that Toyota was caught napping as badly as GM. Last month Toyota and GM both saw their inventories reduced by 18 days’ supply. But because Toyota started the month at a near-ideal 47 days’ supply, it now finds itself scrambling for vehicles with only a 29-day supply. Thanks to months of weak sales (and despite a long summer shutdown), GM started July with 82 days of supply. That number now sits at 64. Is GM saddled with inventory that doesn’t qualify for the CARS rebate? Possibly, but the only GM model cracking the top ten clunker models is the Cobalt. At number 10. Mind the perception gap!
I drove by Arlington SUV awhile ago and couldn’t believe how many Taho-burbans were sitting in the employee parking lots. I bet those vehicles are still there.
From an environmental standpoint this makes sense (I think).
However, this looks to me as something that could backfire ferociously. I mean, there are a limited number of people willing and able to trade in a clunker. This program accelerates their purchase schedule. But once they’ve all got their new wheels, then what?
I wonder how big the decline in highway fatalities will be. Between the teens who can’t afford cars and all those IIHS “Sever or fatal injury certain” early 90’s Blazers off the road…
How many lives will be saved?
I dunno, but if you’ve been driving a 10-13 year old SUV, you probably weren’t in the new car market in the first place.
The used car market will probably be a bit softened. But in all seriousness, we’re spending 3 billion to get maybe a million cars off the road right? Is this going to make a long term dent in any way shape or form when it amounts to a month and a half of sales even at the new crappy rate?
Isn’t the Malibu supposed to be a decent car? I can’t imagine the 4-banger Malibu not moving.
Of course… I’d rather have a Fusion, but I’m sure it would cost more due to demand.
I’ve been impressed over the last few weeks with the number of car carriers hauling new vehicles (as opposed to e-Bay cars).
Seems like all of them have been mid-size and smaller. This can’t be helping the inventory on large vehicles.
This program accelerates their purchase schedule. But once they’ve all got their new wheels, then what?
Another bailout for GM…
Line shutdowns and losses for the rest…
Isn’t the Malibu supposed to be a decent car? I can’t imagine the 4-banger Malibu not moving.
The problem is with the company, not the car.
The public (on the whole) hates the blood suckers!
I dunno, but if you’ve been driving a 10-13 year old SUV, you probably weren’t in the new car market in the first place.
Why not?
I fail to see the logic…
I dunno, but if you’ve been driving a 10-13 year old SUV, you probably weren’t in the new car market in the first place.
Plently of affluent people might have bought a 99′ Cherokee or Explorer and now its got 180k on it and maybe jr. is out of college and so it’s time to buy new car.
Almost nobody foresaw just how popular this program would be. I guess we aren’t good at learning from the experience of others. Like most people, I thought that the US’ much more restrictive program would not duplicate Germany’s runaway success with C4C. Apparently there is a huge supply of 10-20 year old trucks and SUVs just waiting for a reason to meet their maker.
It will also be awhile until we can crunch the numbers and try to deduce how much sales uptick there may have been from people who didn’t end up doing a clunker deal, but none the less got into the market thanks to the excitement it created.
Look for new car pricing on many models to firm up considerably now that inventories are down, factory capacity is way down and buyers are eager.
BTW, if the supply of available clunkers in the hands of willing traders dies down AND if the gov’t wants to keep the stimulus going; there is an easy fix. Simply loosen the rules and give the $3500 to anyone who moves up by 4 mpg and $4500 to anyone who moves up 8 mpg. Suddenly millions of old Tauri, Volvos, minivans and such which presently aren’t eligible because they are too efficient would be eligible.
The point of this stimulus is to bring people into the new car market who otherwise wouldn’t be buying right now. It seems to be working so far.
The point of this stimulus is to bring people into the new car market who otherwise wouldn’t be buying right now. It seems to be working so far.
So the point is economic stimulus, not environmental benefits? That’s possibly easier to argue, since it’s hard to know environmentally if higher MPG is worth crushing a car before its time and using energy to build a new one.
Of course there were large inventories of cars, but presumably carmakers could have reduced prices even further to move them, so the program is also partially a subsidy to car dealers and manufacturers as well as one to some buyers.
In any case, it’s hard to tell if it’s working. It’s clear that a lot of people are willing to take the government money, but we don’t know how many people fall into various categories:
1) Would have bought a car around now anyway,
2) Would have bought a car in the near future, moved up purchase,
3) Would have actually bought a car a couple months ago, but heard about this impending program and put off the purchase,
4) Would not have bought a car in the near future
People in category 1) aren’t stimulus. People in category 4) are stimulus. People in category 2) are somewhat stimulus, in exchange for decreased demand later. People in category 3) are anti-stimulus.
Edmunds and industry data seem to suggest that for every sale that was stimulus, about 3-5 sales would have happened anyway. That’s some success, but not necessarily a wild success.
Not sure if affluent and 13 year old car occur all that often. I mean, I know there’s a significant faction of guys on this site who get their rocks off keeping cars running for as long as possible, but I don’t think that kind of buyer is a significant market force.
Maybe I have a different definition of affluent, but people trading in 13 year old SUVs for small and midsized sedans are not, as a whole, affluent. Affluent people would be trading for Highlanders or Avalons (or pretty much any toyota or lexus), not the Yaris.
toxic,
I think it has to do with your commute. I had to buy a new car after 6 years when I was driving 30k a year. Now that I’m only driving 8k a year I see no reason why I wouldn’t be driving a 10yo car with 80k on it.
Synonyms for affluent: rich, wealthy, prosperous, well-to-do, comfortable, born with a silver spoon in your mouth, well-off, well-heeled.
Draw your own conclusions. When I think affluent, I think people who buy a Buick when they are feeling thrifty. I suspect that the average Cash for Clunkers customer is middle class. I don’t see why that would ruffle feathers. Guess it’s a matter of opinion.
Okay, so: prior to economy meltdown, x number of people were about to buy or just bought a car.
Then the meltdown happens, and now a smaller number of people were about to buy or just bought a car. Let’s say x/2 just to be straightforward. That leaves us with x/2 who would have bought a car if the economy hadn’t melted down, and so will buy a car when the economy comes back up — we’ll call those people y.
If we assume that when the economy goes up the number of people who are about to buy or just bought a car will go up to x+y (where x equals the number pre-meltdown, and y equals the number of people who deferred their purchase), this suggests a brief boom time after the economy rebounds, followed by a gradual return to x.
Now, with CARS, a certain number of the deferred purchases — y — will elect to make their purchases now. Let’s say y/2, again for simplicity. There are also some people who wouldn’t have made their purchase at all (deferred or not) without CARS, but we’ll ignore them for convenience.
So, by this reasoning, the net result of CARS is this: we are spending tax dollars to move a subset of future-rebound sales into the current timeframe, in the hope that the resulting sales will help manufacturers weather the lean times, at the cost of lower future-rebound sales (plus tax dollars, of course.)
Since the future-rebound sales were, by their nature, based on deferred sales and so temporary, then net sales will be the same across a timeline that encompasses the first day of CARS through the future-rebound sales boom, when compared to a non-CARS scenario across the same timeline.
Since the future-rebound sales are a temporary bump before returning to pre-recession levels, the net result is to move some of those future-rebound sales to the manufacturers to a time when they need it (now), while taking those same sales away from a time when they won’t need it (the temporary future-rebound before return to x levels.)
Which means — if you’ve skipped to the end — that CARS is another car manufacturer bailout, this one aimed at all manufacturers selling cars in the United States, via a subsidy given to a subset of people so they’ll make a purchase now instead of later. That subsidy has been financed by a small contribution from every American Federal taxpayer, and the overall impact on long-term sales will be minimal.
Note also that re-upping the subsidy actually makes perfect economic sense, in that the pool of deferred purchases that can be made is actually determined by the gas mileage/age requirements, and so is inflexible — there are only a certain number of those cars out there, and the number cannot increase. When the supply of those deferred purchases is inflexible, it makes sense to continue subsidizing until the subsidy is no longer sufficient to get people to take advantage of it. In this way, we cannibalize only those sales that were being deferred because people (a) needed a newer car, but (b) did not have the money to purchase one during the recession, so were doing their best to get by.
It’s an economic model and so somewhat flawed, but it’s pretty straightforward.
“So the point is economic stimulus, not environmental benefits?”
The main point is economic stimulus. The energy savings requirements are an added kicker. If the economy were doing well on its own there is almost no chance this program every would have happened. The same is true of similar car buying incentives in Europe and China.
The US version of C4C differs from the European versions primarily in being limited to fuel thirsty vehicle models being eligible for the bounty.
johnthacker, you left out category 5: People who were putting off buying a new vehicle, heard about the C4C program, went to a dealer, found out their old ride didn’t qualify, but made a deal to just trade it in and get a new car just the same. People are starting to see the layoffs calm down at their work, the stock market pick up and the general mood go from “End of Days” to “We Will Probably Get Through This”. That change of overall mood is highly important. Economic activity is more dependent upon the collective mood than many people realize.
Wait a minute – a few weeks ago Toyota said they were ramping up production. And in the blogsphere they were accused of acting like GM since turning up production volume in the throws of a recession was considered foolish.
And now they’re “caught napping as badly as GM” where they don’t have enough cars on the ground at dealerships?
You guys can’t have it both ways… either it’s a case of foolhardy managers building too many cars in a recession or it’s a case of improper planning failing to forecast artificial demand created by the CARS program.
Perhaps people should be reminded that it takes a few months of lead time to manage the volume of vehicles in the sales funnel for volume automobile sales in the USA. Any supply chain or logistics guy will tell you that there is no perfect way for the manufacturers to have dealt perfectly with this cash for clunkers program the way it was released to the public.
But on the plus side factory to dealer incentives have come down quite a bit on the vehicles that qualify for clunker-cash at the time of purchase. At least they’re not napping in that regard.
davejay: nice analysis, but what’s your conclusion? How does this make you react to the program- positive, negative or neutral?
John Horner: I can get behind your conclusion. There are many benefits that othes have mentioned (fuel economy, emissions, safety, sales tax revenue.) But the biggest VALID fear I hear is pulling sales forward. Meaning $3B for a program to spur economic activity that was already going to happen. But what if those future sales never happen? We may never get to 17,000,000 sales a year again if people can’t get out of this economic rut. Stimulus packages like this are jumpstarts, not longterm solutions. And if it works, people won’t just stop buying next month. Once the ball starts rolling, hopefully momentum will carry the auto industry until the economy rebounds.
I think about retailers on the ropes. If they survive this downturn (unlike Circuit City or Sharper Image), people will shop again. But it doesnt matter if people will return if the stores close. So they do whatever they can to keep the doors open. This $3B is keepin the dealer’s doors open until people start shopping again on their own (plus all those other great benefits!!).
The government makes the customer fill out a little survey, so we will know soon enough income levels, whether or not they would have bought without the clunker program and how long it would have been before they bought if it weren’t for the clunker program.
As for inventory, 4 cylinder inventory is drying up, which will mean higher prices soon enough. At my store, we are already reducing discounts on Elantras and are charging full MSRP on the Touring.
I think John Horner is on the right track. I’ll bet there are quite a few other folks just waiting for our congresscritters to change the rules so that more “average” Americans can qualify.
We aren’t in the market for a new car now, but in about 1 year when some college costs go away, we might be. None of the 4 cars in our family qualify right now (either too efficient or worth more than $4500). If they loosened the rules a little bit, we might think about a new car right now. Is that a stimulus today, or just stealing from sales in 2010?
I would like to read TTAC’s analysis of Edmunds’ findings of the real top 10 at reported here…
http://money.cnn.com/2009/08/07/autos/cash_for_clunkers_sales/index.htm