Cash for Clunkers Program Replenished

By Brendan Moore

08.07.2009

cars-programThe United States Senate approved an extension of funding for the Cash for Clunkers program yesterday afternoon, and President Obama signed the legislation this morning.

The program now has another $2 billion USD to use in the popular program, which provides up to $4500 to the buyer of a new vehicle that trades in a gas guzzler that meets the program terms. The original $1 billion funding of the program was depleted almost immediately, leading to the program’s suspension a mere seven days after the program rules were delineated to U.S. automobile dealers.

The political pressure on the Obama administration and the Democratic majority to continue the program was immediate and intense. The Cash for Clunkers program found favor with the public, and is one of the overall economic stimulus program’s most successful measures.

It worked, and it worked quickly.

The House speedily approved an additional $2 billion for the program last Friday, before its summer recess. Since the House members will not return until after Labor Day, that meant the Senate was going to have to approve the measure “as is” if the program was going to be renewed anytime soon – any amendments the Senate tacked on to the bill would have to go back to the House after Labor Day to be debated, and then voted on.

Seven different amendments were pushed in the Senate, but were turned away, one by one. The bill passed largely along partisan lines, with 51 Democrats, 7 Republicans and a pair of independents voting for it.

After signing the bill this morning, President Obama stated, “Now more American consumers will have the chance to purchase newer, more fuel-efficient cars and the American economy will continue to get a much-needed boost.”

The extra $2 billion could fund another 400,000 unit sales over the remainder of the program. That, combined with the new vehicles already sold under the first stage of the program, would provide a much-needed boost to the auto manufacturing and auto retail sectors of the economy.

However, dealers nationwide are reporting shortages of the fuel-efficient cars consumers are purchasing through cash for clunkers.

This leaves the manufacturers with a dilemma as to whether or not they should increase production now. One, there is considerable lag between the decision to increase production and the cars showing up on the dealers’ blacktop, and two, there is almost always a drop in sales after any sales promotion, since some sales have been “pulled forward” from their normal sales time, as a result of people trying to get in on the advantageous terms of the promotion while it is still in effect.

Manufacturers could increase production only to have the cars show up after all the shouting is over. And then the cars just sit. This reduces profitability for both the manufacturers and the dealers – there is too much inventory on the ground.

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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