Automakers Give Rave Reviews to ‘Cash for Clunkers’

Automakers Give Rave Reviews to Cash for Clunkers

With its awful name and convoluted rules, the cash-for-clunkers program might well have been a flop, yet it turned into a surprising success, even inspiring many of its critics to call for an additional $2 billion in funding. One big reason: the program boosted July 2009 sales of new cars and trucks, giving the economy a bit of a lift.

Some of the biggest gains during July were posted by small foreign carmakers such as Subaru, Hyundai and Kia, whose sales jumped 34%, 22% and 9%, respectively. Hyundai in particular was well prepared for the program from a marketing standpoint, having encouraged dealers to accept qualifying trade-ins nearly two weeks before the U.S. Department of Transportation launched its official cash-for-clunkers website. The payoff is already filtering through to workers. “Hyundai Motor Manufacturing Alabama is now increasing production by returning to a five-day workweek in July after being on a shortened workweek since mid-October,” said Dave Zuchowski, vice president of national sales.

The big domestic carmakers — Ford Motor Co., General Motors and
Chrysler — had less frothy numbers but still managed to pick up market share in July for the first time in months, at the expense of German and Japanese competitors. Ford emerged as one the program’s biggest winners, posting a genuine sales increase for July over the same period last year; the automaker could also lay claim to the top vehicle purchased with clunker cash: the compact Ford Focus.

Ken Czubay, Ford vice president for U.S. marketing, sales and service, said
Ford already had a relatively strong month in progress before the cash-for-clunkers program started, but it certainly helped. “We achieved a sales increase even though we decreased incentive spending in an increasingly competitive environment,” he said.

Even Chrysler managed to draw some good news from the program. “While we don’t expect the industry sales forecast to change dramatically, we are seeing encouraging signs that consumer confidence is building and more consumers are considering purchasing a new vehicle,” said Peter Fong, the lead executive for Chrysler’s reorganized sales organization. The automaker’s total sales dropped 9% for July, but dealer inventories declined significantly and retail sales grew as consumer traffic more than doubled in the last week of the month, Fong said.

GM, which sold more vehicles in July than in June — and had a nice 16% improvement in pickup sales — lavished praise on the program and pressed for its continuation. “The government’s program is doing what it is designed to do — spur consumers to trade in older gas guzzlers for new, fuel-efficient vehicles,” said Mark LaNeve, GM vice president for sales. The Department of Transportation confirmed the fuel-efficiency gains on Monday, Aug. 3, noting that of the 120,000 rebate applications processed so far, the cars purchased have been far more fuel-efficient than the minimum requirements to qualify for the highest rebates. But GM’s July news wasn’t all good: though sales were up month to month, they are still down 18% from July of last year.

Japanese automakers fared less well. Toyota reported that its sales tumbled 11% year over year in July, while Nissan’s fell nearly 25% and Honda’s fell 17%, despite the government incentive program. However, Jim Lentz, Toyota Motor Sales president, said the cash-for-clunkers program reduced the recessionary drag on sales and offered a nice dividend for the environment. “Clunker-related Toyota sales over the seven days alone will save customers an estimated 8 million gal. of gas and $20 million in gas spending over the next year,” he said.

Dealers, while loathing the 136 pages of rules surrounding the program and criticizing the government’s unfriendly website for processing claims, are uniformly eager to see the program continue. “You’ve got to understand, I’m for anything that helps sell cars,” noted a Michigan dealer, who described how he had to painstakingly feed claims into the site.

Not everyone sees the program as a win-win. Economist David Rosenberg at Toronto investment firm Gluskin Sheff worries that today’s sales boost could lead to tomorrow’s sales slump. He likens the current cash-for-clunker boost to the 0% financing that automakers introduced in the aftermath of the 9/11 attacks in 2001. As a result of those incentives, motor-vehicle sales perked up and the economy got a nice boost. “But what all these gimmicks do is bring forward consumption — they don’t create anything more than a brief spending splurge at the expense of future performance,” Rosenberg says in a new report, pointing out that after the post-9/11 financing incentive ended, sales dropped back down.

See the best cars from the 2009 Detroit Auto Show.