Dealers Applaud Clunkers Program
David Hersrud's small Chevrolet dealership in Sturgis, S.D., had shriveled so much from lack of customers this year that he was considering selling some of his inventory to other dealers at wholesale.
"We were getting a little nervous," he says.
Then the federal cash-for-clunkers program kicked in July 24, and Hersrud did a month's worth of business in just six days last week.
Cash-for-clunkers - officially the Car Allowance Rebate System (CARS) - helped more than Hersrud. It's credited with turning around business at dealerships across the country and resulted in Ford Motor's first monthly sales increase since November 2007.
"Without cash-for-clunkers, we would not have had a year-over-year increase" in July sales, Ford Vice President Ken Czubay said Sunday. Automakers report July sales today.
CARS provides government discounts of $3,500 or $4,500 to people who trade in older vehicles with poor fuel economy for new ones that do better. The amount depends on how much better the new one is.
It's "the stimulus program that has worked better than any other stimulus program," Transportation Secretary Ray LaHood said on CBS' The Early Show Saturday Edition.
But the program, intended to run until Nov. 1, already has run through its $1 billion budget. The House quickly voted Friday to give it $2 billion more. But it's unclear whether the Senate will follow this week. That leaves dealers like Hersrud wondering whether they'll get paid for tens of thousands of transactions they've already written - and whether to keep writing them.
Also key: Is CARS' explosive success the sign of a turnaround for the auto business or a one-time surge that quickly dried up the pool of potential buyers?
The program's success "seems to confirm a very large degree of pent-up demand" for new vehicles, Himanshu Patel, a JPMorgan auto-industry analyst, told clients in a note Friday in reaction to news that the program was fast running out of money.
He forecasts that automakers will sweeten their own discounts if the government doesn't continue CARS.
That would be good for buyers and cash-strapped auto component suppliers but bad for automakers' profits.
Senate opposition to giving CARS more money started to build over the weekend, setting the stage for a battle this week.
"This is a great example of the stupidity that's coming out of Washington right now," Sen. Jim DeMint, R-S.C., said in a Sunday interview with Fox News. "We're helping auto dealers while there are thousands of other small business that aren't getting the help. The role of the federal government is not to run the used car business."
He says he'll eagerly join any filibuster attempt by former presidential candidate Sen. John McCain, R-Ariz., to block a vote on more money.
Other senators want to change the rules and require new cars purchased under CARS to get better mileage than the 22 mpg floor in the current version. And there's some sentiment to include used cars in a revised, refunded CARS program.
Backers, though, hope those are minor detours en route to Senate approval.
"It's a successful government program and it's not broke, so why fix it?" says Bailey Wood, legislative director for the National Automobile Dealers Association, the dealers' main trade group.
It supports dealers and automakers, and "the driving public (is) getting new cars, and this is a win-win for America. It's a win-win for our economy," LaHood said in an interview on C-Span's Newsmakers program on Sunday.
LaHood said that an additional $2 billion "gets us through the month of August" and added, "I believe the Senate will pass this."
'A winner,' many buyers say
Automakers have forecast a mild recovery the second half this year and hope CARS is the catalyst.
Former Federal Reserve Chairman Alan Greenspan said CARS "probably would have been a dud" six months ago. But its dramatic success "is a very important indicator that the state of confidence in the economy is beginning to pick up," Greenspan said on ABC's This Week Sunday.
In one short week, CARS has:
Boosted showroom traffic 50% to 200%, dealers report, and some of that can be converted into sales. The program is "definitely a booster shot," says George Martell, COO at Woburn Foreign Motors Group in Boston.
Retired close to 250,000 fuel guzzlers and replaced them with vehicles that use less.
Hyundai, for instance, says that clunkers traded to its dealers have averaged 16 mpg in combined city-highway use, according to the government numbers used for CARS. New cars that customers bought averaged 24.5 mpg, a 53% increase.
Volkswagen spokesman Tom Wegehaupt says VW dealers have handled 2,050 clunker transactions. Three-fourths were for VW diesels. Those are some of the highest-mileage vehicles available in the U.S., scoring in the mid-30s in city-highway use.
"It's the gift that keeps on giving," says George Pipas, a sales analyst at Ford Motor. "We estimate fuel savings at about 3 million barrels of crude (oil) annually, forever. It might not sound like much, but it was accomplished in a week. This could be the biggest shot in the arm for energy conservation ever to come from inside the Beltway."
Put millions of dollars into city and state treasuries in taxes and fees for every new vehicle sold.
It's a winner in the minds of many car buyers.
"I think it's fantastic," says Samuel Jenesky, 58, a computer specialist in Pittsburgh. "It's helping to get this economy flowing."
He turned in his 1989 Jeep Comanche for a new Chevrolet Cobalt that he'll give to his son Samuel Jr., 17: A $19,000 car for about $12,000 after CARS and other discounts "was a deal I couldn't pass up."
As required, the dealer will ruin the engine of the Comanche so it doesn't end up back on the road. Then the vehicle goes to a scrap dealer.
The Jeep would use about 800 gallons in 12,000 miles, the Chevy, about 450 gallons, using government calculations.
In addition to running out of money in just a week, cash-for-clunkers has put dealers through "a nightmare," in the words of Paul Leathers, sales manager at Ripley & Fletcher, a Ford-Mercury dealership in South Paris, Maine.
A balky government website, overwhelmed by interest in the program, crashed frequently. It took many dealers several days first to register to participate, then days to report CARS transactions so they can get reimbursed for the $3,500 or $4,500 discounts they gave CARS buyers.
"There's a huge backlog," meaning that despite Obama administration promises that the program will continue at least through today, there's no way to tell if there's really enough money left, Wood says.
The dealers' association, Wood says, has "advised dealers they face a risk they will not be reimbursed if the program doesn't have enough money. And we believe the money already is nearly all committed."
Some dealers quit taking clunker trades over the weekend or told customers to wait until the Senate makes its move this week. Some wrote provisional CARS deals putting the buyer on the hook if the government fails to provide more money.
Paragon Honda in Queens, N.Y., is among those dealers requiring customers to bring back their new cars if the Senate fails to provide more money for the CARS program this week.
But that hasn't deterred customers, says Brian Benstock, Paragon's general manager.
"The showroom," he says, "is full."
Details on how to participate in the CARS program are at www.cars.gov.
Fuel economy ratings necessary to determine which vehicles qualify for CARS discounts are at www.fueleconomy.gov.