Cash-For-Clunkers Is a Big Hit

By Brendan Moore

07.28.2009

united_states-one-dollar-bill-obverseThe NADA (National Automobile Dealers Association) stated yesterday that over 16,000 dealers in the US have signed up to participate in the federal government’s “cash-for-clunkers” program and that public interest in the program seems to be much higher than forecast.

Since there were approximately 19,000 new-vehicle dealers in the US at the end of June, that means that around 80% of all dealers have signed up for the program.

Under the federal program, people that trade in eligible older trucks or cars when they buy a new, more fuel-efficient vehicle can receive as much as $4500 USD in credits.

The law took effect on July 1, but since the U.S. didn’t publish rules for the program until July 24, it was difficult to gauge just how much interest there was in the program. But in the last four days since the rules of the program were defined, it has become obvious that the program is a bona fide hit. Some dealerships wrote up deals weeks in advance and had the eligible trade-ins from customers sitting on their back lots, waiting for the rules to be published so that they could pull the trigger on the deal itself.

It looks as if some dealerships will have post some great sales numbers in July and August, at the very least.

And, within that statement is the potential problem, because the program expires on November 1, 2009, or, when the 1 billion dollars in federal funding runs out – whichever comes first. If initial demand holds up, then the money is going to run out way before November 1, reducing the last couple of months of the program to serve as a sad dénouement.

The two main reasons that the program exists in the first place is to spur new vehicle sales, and, as a secondary consequence of those sales, replace some gas guzzlers on the road now with more fuel-efficient vehicles that use less gasoline and put out less emissions.

Will the government put some more money towards their economic and environmental goals?

It’s always hard to predict what will happen in politics, but there are already some murmurings from Democratic politicians suggesting that the program should be extended vis-à-vis the timeline, and enhanced with more monetary funding, should demand for the program outstrip supply early on.

Meanwhile, these next couple of months will be a bright spot in an otherwise cloudy year for a lot of dealerships. On the consumer side, it is a pretty sweet deal if your trade-in meets the eligibility requirements – you can’t beat it with a stick. It provides a tremendous incentive to buy a new car for a great, out-the-door price.

As a courtesy to our readers, we will reiterate the program terms below:

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The bill provides cash vouchers of up to $4500 USD for car buyers that trade in vehicles defined as gas-guzzlers. The eligible trade-in vehicles are:

Passenger cars as old as 1984 model year with combined mpg ratings of 18 or less are eligible. Owners get a $3,500 voucher if they buy for a new car that is rated by the federal government at least 4 mpg higher, or, $4,500 if they buy a car that achieves at least 10 mpg more.

SUVs, pickups or minivans as old as 1984 model year that get 18 mpg or less could redeem a voucher for $3,500 if their new SUV, truck or minivan gets at least 2 mpg more than their old vehicle or $4,500 if the new truck or SUV gets at least 5 mpg more. No word yet on what happens when someone trades an old pickup truck for a new car, but since the light truck is a passenger vehicle, it is assumed the passenger car terms of the program kick in.

Owners who wish to trade in such a vehicle must have owned it for at least a year, and it has to be road-worthy. Dealers are then accountable for making sure the trade-in gets taken off the road and junked.
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Lastly, just as an FYI, for those consumers interested in redeeming a trade-in under the program terms, you may wish to do that sooner rather than later, just in case the program is not extended and/or replenished.

Editor’s Note: A federal government spokesman said late this afternoon (07/28/09) that over 20,500 dealers have now applied for eligibility for the cash-forclunkers programs. We assume the difference in numbers between the amount of dealers the NADA lists and the government application count is due to the fact the government requires an application for each make the dealership has in one location. Therefore, as an example, a Buick-GMC dealer might be on the same lot, but would be required to submit two separate applications to the program.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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14 Comments

  1. It is a great deal if you’ve got a 1987 Chevy Blazer that just barely runs and is worth $175 at a junkyard. It’s an unbeatable deal for that kind of situation.

    That’s why the money will run out early.

  2. Wish I had a vehicle that qualified, because I’d be down at my local Honda dealer right now getting ready to drive a new Civic away.

  3. Good traffic at the local dealers here around Kansas City

  4. Generating interest is still a lot different than generating sales. Car dealers seem to be doing their best to tout the $4500 rebate without going into details.

    The requirements are so restrictive that I a hard time believing there’s that many people out there with both a vehicle that qualifies and the inclination to buy a brand new car.

  5. Lots of noise about what will be a small amount of sales in the yearly figures.

    Am I right? Hellya, I’m right.

  6. If they were actually interested in getting older polluting cars off the road, they would have limited it to 95 and earlier viehicles (i.e. pre OBD II).

    As it is, most folks wo will be taking advantage of this program will be folks driving an 8-10 year old Honda or Toyota worth around $2000 (or $1200 trade in) who were about due to buy a new car anyway and were just putting it off due to ecconoic jitters.

  7. Based on my personal experience as one who has usually driven older cars (sometimes out of choice, sometimes out of necessity), people who own the qualifying clunkers ARE USUALLY NOT in a position to buy a brand new car. If you can afford a new car, you probably aren’t driving a 15-year-old model that gets 10 miles to the gallon. Ah, there’s always a ‘Catch 22.’

  8. I’s do it if I had a trade car that quallefied

  9. It doesn’t look like the author of the post is saying that the cash for clunkers is “good” or “bad”. He just says the public likes it, that it’s a hit. That is a fact, not an opinion. Most of the public that’s interested in the offer is pretty happy with it. Despite problems, the public is reacting positively. You should see the crowds here in Dallas.

  10. Actualy we have no data whether the puplic likes it ot whether it is a “hit” with the public. All we know at this point is that almost every single new car dealer has signed up with the program.

    That almost all new car dealers would sign up to use the program was fairly predictable.

  11. Mark in AZ

    From the AP just an hour ago:

    “The cash-for-guzzlers program will run out of its $1 billion funding “well before” its Nov. 1 expiration date, a spokesman for the National Automobile Dealers Association said today, after the government said dealers have already applied for 10 percent of the funds”

    That’s 10 percent of the funds in only six days. And demand is supposed to increase as awareness of the offer grows.

    I’d say that’s a popular program.

  12. “That’s 10 percent of the funds in only six days. And demand is supposed to increase as awareness of the offer grows.”

    I actually think it’ll be the opposite — initial demand will be strong and then quickly peters out. It seems to me that initial awareness is very strong, and people are not waiting to take advantage of it.

    And I’m still wondering what effect it will have over the next 6-12 months. Is it just shifting sales to now that would have otherwise taken place in the next year or two? And will people buy new vehicles in order to take advantage of the rebate, only to regret it in a few months when they realize they were driving a junker because really CAN’T afford a new car?

  13. I disagree with both points of view.

    One, I don’t think we’re anywhere close to the top of the demand curve.

    Two, I think once peak demand occurs, then the deal volume will drop like a rock, and the remaining will last almost to the November close date.

    Guess we’ll have to wait and see who is right and who is WRONG.

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