Auto dealers are now facing a sales crisis as the $3 billion “Cash for Clunkers” cash incentive program closes. The program, introduced by the U.S. Government in late July and ended August 24, allowed consumers to trade in their old gas-guzzling cars and trucks with a mileage of 18 miles per gallon or less for a value of up to $3,500-$4,500.
The surge of applications under the program saw dealers run out of stock for popular models such as Focus, Civic, Corolla and Altima. The U.S. Department of Transportation reported that as many as 690,114 new cars were sold under the program, reflecting a $2.88 billion in rebate applications, which is close to the program allocation.
The situation has become worse as automakers have been slow to ramp up production to replenish the lots. Paul Grahl — Sales Manager of a dealership in Ypsilanti Township, Michigan — has commented that he hasn’t yet received the cars he ordered from Ford (F). David Kelleher, owner of two Chrysler dealerships in the Philadelphia, has revealed that 350 to 400 vehicles used to be displayed at each of his lots, but the Clunkers program reduced that to about 50. He, too, is waiting for replacements.
This has left the consumers with little or no choice in the selection of cars. Dealers in the U.S. have reported a lean show in their showrooms as inventories shrunk to near record low levels.
Supplies have dried up in the post-Clunkers scenario. At the end of August, General Motors reported 379,000 cars and trucks in its supply, about half of what it had in August of last year. Ford had 243,000 cars and trucks, a 47% decline from the year ago level.
Nevertheless, Cash for Clunkers has perked up the auto industry as well as the U.S. economy. The program boosted monthly sales to levels unseen since September last year. This led economic growth in the third quarter to increase by 0.3%-0.4%, as estimated by the White House Council of Economic Advisers.
Several automakers have benefited from the program, especially the industry leaders in fuel-efficient vehicles — Honda (HMC) and Toyota (TM). Ford witnessed its first sales gain for July since November 2007 due to the program. In terms of market share, Toyota led with 19.4% of all program sales, followed by General Motors with 17.6%, Ford with 14.4% and Honda with 13%. Chrysler ended seventh behind Nissan (NSANY) and Hyundai.
However, real play has now begun as the incentives have expired. Speculation is rife that overall auto sales will fall sharply and demand will swing back to traditional levels. Nevertheless, the White House Council of Economic Advisers anticipated the program-induced economic growth to continue in the fourth quarter as automakers work to replenish inventories. It also expected the program to create or save about 42,000 jobs in the second half of 2009.
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