Is The Pump Primed?

After 'Cash For Clunkers,' Public Might Still Be In The Mood To Buy

August 25, 2009|By Andrea K. Walker | Andrea K. Walker,

Car dealers and manufacturers said the federal "Cash for Clunkers" program did its job in giving a much-needed boost to the struggling industry, but now they're bracing to see how long-lasting the effects will be.

The program, which gave consumers as much as $4,500 to junk their inefficient vehicles for new models, ended at 8 p.m Monday with the Department of Transportation estimating that 700,000 to 800,000 vehicles sold under the program in just a month.

While no one expects the coming months to reach anywhere near those numbers, they're watching to see what kind of impact it had on the psyche of consumers scared to spend because of the weak economy. Some say that whether or not shoppers continue to buy cars could be an indication of how close the economy is to emerging from the recession.

"I think it boosted sales and any sales are good sales right now," said Matthew Scruggs, a research analyst with Frost & Sullivan who has been following the program. "I think it accomplished its goals. The one question is if it accomplished the short-term goals as well as the long-term goals, which are helping the economy in general and helping automakers really turn their sales around."

A spokeswoman for Chrysler said the program got consumers to at least start thinking about making big purchases again. The car manufacturer will continue through Aug. 31 with an incentive program, worth up to $4,500, it started in conjunction with cash for clunkers even though the program is ending. It will offer additional incentives beginning Sept. 1.

"We don't expect that the level of July and August sales will be maintained through the rest of the year," said Kathy Graham, a spokeswoman for Chrysler. "But it got consumers not in the market for a new vehicle to think about it. That's really the first step to a sustainable rebound."

General Motors announced last week it was going to build 60,000 more vehicles because it sold so many under the program. About 30 percent of the sales were people who didn't use the program, said spokesman John. M. McDonald. A large number also weren't in the market to buy a car until they heard about the federal program.

McDonald said the incentive program wasn't meant to create additional future momentum, but that it helped the industry at a good time.

"The timing of it is really good," McDonald said. "The economy is starting to come around, credit is starting to loosen up again and people are starting to feel a little bit better about their jobs. It's at the tail end of things being bad and starting to be good."

Dealers across the country and Maryland were scrambling yesterday to get all of their paperwork in by the deadline so they would get paid for their clunker sales. The federal government extended the deadline for filing paperwork until noon today.

Even while praising the program, dealers complained about the bureaucracy surrounding it, and many said they hadn't been paid yet for the cars that they sold. About five dealers in Maryland were owed more than $1.5 million, while about 30 were owed more than $500,000, according the Maryland Automobile Dealers Association.

Many of the manufacturers, including GM and Chrysler, have extended interest-free loans and other incentives to help tide the dealers over until they get federal funds.

"As far as getting customers in, it was a success," said Peter Kitzmiller, president of the automobile dealers association. "Unless we get paid and we get paid soon, it's going to be a disaster for the dealers. At some point a dealer doesn't benefit by handing out $4,500 checks to customers."

Northwest Honda stopped selling cars under the clunker program Sunday so it could focus on submitting the paperwork. The dealership had people working late through the weekend filing paperwork. General Sales Manager John Orofino said the dealer was owed more than $1 million.

Orofino said his dealership was financially sound enough to cover the money until they were paid, but he worried about smaller, mom-and-pop dealerships.

"With dealers already strapped, this is a tough situation," he said.

He said people were still coming in Monday to take advantage of the program. "We're all clunked out," he said.

The Bob Bell Automotive Group sold about 380 vehicles under the program and was owed about $1.6 million. The dealership said that it had gotten paid for about three of those vehicles Monday.

"We're worried about not getting paid," said J.P. Bishop, president of the company. "I think we'll get paid eventually, but it's hard to take $1.6 million out of the business and not have it affect you."

He said the biggest problem the company has now is they don't have a lot of inventory left to sell. Bishop worries manufacturers will start to deliver new cars at the slow part of the season.

"They'll be cranking up product so we'll have full lots at the worst time of the year," he said, adding that he hopes better sales continue.

Others think it won't be nearly as dismal as it was before the program.

"I think they'll be some residual momentum because people's attitudes have changed a little bit because of the program," said Pat Goss, a car expert and co-host of "Motorweek" on PBS. "They're feeling more comfortable buying new cars."

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