Cash for Clunkers Saps Demand

“What do you make of overall car market? By the way, we’ve got Ford’s auto sales down 5.1% in the month of September. That’s not a very good showing. Overall the American car market is going to shrink to below 10 million vehicles this year.

I think we have some quick revisionist history happening on the cash for clunkers plan. It was not the successful stimulus program. It was a quick way to spend $3 billion but there’s no lasting effect. The market’s back where it was in August. I got a preliminary number from Chrysler. I’ve got to go through this more thoroughly but the preliminary number is they were down 42% in that’s compared to a very weak September of last year. What do you make of that?

Not a surprise at all. Exactly where they were before cash for clunkers and back there again. Nobody’s buying Chryslers.”– Fox Business Network 10/1/2009

The government’s Cash for Clunkers rebate program was generally very well received as the program ignited demand for vehicles in late July and August. However, many were skeptical that the program would in fact boost sales or simply pull these sales from the future. The temporary nature of the CARS Program was well known to manufacturers, dealers and consumers, so everyone wanted to take full advantage of the rebates while they were available. Anyone who was in the market for a car and qualified for the program would have considered buying their car during the program.

Now, we are seeing the post-clunker slowdown as the major auto-manufacturers are reporting September sales results that are below expectations. Ford (NYSE:F) was slightly worse than expected falling 5.1% (5.8% if you exclude Volvo). Nissan saw their sales drop 7%. Chrysler looked the worst of the slowdown, with sales falling 42% and more than 61% for the Chrysler brand. But in Chrysler’s case, the comparison is to pre-bankruptcy filing, which certainly skews the results.(Note: General Motors had not yet reported their results at the time of writing, but they are expected to be far worse than a year ago.)

These comparisons are versus sluggish sales one year ago, not against the rebate fueled sales totals of last month. The seasonally adjusted annual sales rate slid to 9.3 million vehicles, this important metric stood at over 10 million vehicles the past two months. However, the annual sales rate was better than analysts had predicted mid-month at 8.8 million vehicles. This improvement reflects an up-tick in sales in the second half of the month.

In addition to the lack of demand after Cash for Clunkers, auto dealers were dealing with the industry’s lowest inventory levels in 24 years. This only exacerbated the problem as consumers were left with fewer options and dealerships had less incentive to make deals. However, this data was well known to industry analysts and sales results still fell short of their projections.

This outcome was not a surprise to many who were critical of the Cash for Clunkers program, but time will tell how long this lack of buyers will persist. If this was simply a one month hiccup, then it would be hard to say that the program was a failure. Of course, the trend in the second half of the month is somewhat encouraging. However, should auto sales continue to disappoint through the end of the year, the program would have been a complete waste of money.

Cash for Clunkers Saps Demand

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