Too many clunkers, not enough cash

Marketplace Staff Jul 31, 2009

Too many clunkers, not enough cash

Marketplace Staff Jul 31, 2009


TESS VIGELAND: So you were planning to head out to the auto dealership this weekend. Looking for a little government-sponsored trade for that gas guzzler in the driveway. Then you heard that Cash for Clunkers was so popular that they had to suspend it.

Scratch that. Go buy your car. They’ll find a way to pay for it. Really! That’s pretty much where we are. On Friday, the House allotted more money and the Senate will vote next week. Meantime, Uncle Sam is urging you to keep those clunkers comin’. If for no other reason that to give the government bragging rights to a program that works.

Our good friend Phil Reed of is here with the latest. Hi Phil.

Phil Reed: Hi Tess.

Vigeland: You been a little busy the last 48 hours?

Reed: It’s been a wild ride. Nobody could’ve predicted that this would happen, I don’t think.

Vigeland: Well obviously nobody predicted this would happen. This thing is basically less than a week old. You do the math on a $1 billion program with $4,500 rebates and that’s something like 250,000 cars traded in already?

Reed: Well yes, that would add up to a billion. But there’s probably a lot of deals that are pending. So it’s unknown. There could be far more than that already.

Vigeland: Wow. Can you give us an idea of what that means in the industry? Do they ever sell that many cars in a week?

Reed: It’s definitely a big spike, in terms of sales. The question is, how long will it last? Now, if it lasts at its current rate, it will put us on track for about, I think it’s 12 million or 13 million cars. Now, in the good old days, just a couple of years ago, they used to sell 16 million cars per year. So we’re getting back to where that used to be. But if it sort of goes back in the other direction, we’ll probably wind up this year selling about 10,000 or 11,000 cars.

Vigeland: What does it tell us about pent up demand for cars in this country?

Reed: I think it sends a clear signal that given a good reason to buy a car, people are ready to take the plunge. And that’s, I think, exactly what the program was designed to do. Because in terms of numbers, as you pointed out, it’s really not going to solve all of the problems that they have out there, but it shows people, first of all, this is a program that works. And secondly, that there is a pent up demand of people waiting for the right reason to go out and buy a new car.

Vigeland: Well so you say the program works. What are you hearing about the process, both for consumers and for dealerships? Has it been fairly easy?

Reed: The process is definitely not user-friendly. It’s probably a little easier for consumers than it is for the dealers. The consumer needs to first of all find out, “Do I qualify?” Once they qualify, they need to find a replacement vehicle. A lot of people think they qualify and they don’t, so you have to go to a and make sure you get 18 miles per gallon or less. that’s a good starting point.

As far as the dealers go, I was actually in New York this week talking to dealers and they were just deluging us with questions about the mechanics of the program. Many of them are very detailed and they pertain towards the titling and the insurance of the cars, but there’s also a lot of unknown questions about how to dispose of the trade-ins. The car has to be basically rendered inoperable. But then once you do that, how do you salvage the car and who gets the money from that? So there’s lots and lots of questions.

Vigeland: You know, I joked about this a little earlier, wondering if junkyards were ready for this.

Reed: Everybody’s been watching this coming and people that are going to profit from it, in terms of money, have been trying to arm themselves and be prepared. And clearly, deals are going through. In other words, I mean, they’ve almost used up the money, so some people have navigated a very, sort of labyrinthine process. Meanwhile a lot of people are very vocal with questions.

Vigeland: This was meant not only to help jump start the auto industry, but also to get more fuel efficient cars on the road. Is there any sense yet of what consumers are buying when they trade in their clunkers?

Reed: That’s a great question and we have been getting reports of inventory levels that are definitely diminishing. And that means that some of the very highly fuel efficient cars — particularly for example, in the Toyota line-up — are getting to be hard to find. And that’s partly because production levels were cut way back and there’s probably going to be less and less to choose from as we go forward.

Vigeland: So, I hate to ask this, but does that potentially mean prices are going to go up?

Reed: Well that’s been a huge discussion this week. We’ve been getting lots of feedback from consumers who were in the middle of a deal when the Cash for Clunkers was approved and funded, they went back, they thought that they had a set price for the vehicle and one consumer reported that the price was suddenly raised $1,100. Other people are saying dealers are telling them flatly, “You have to buy sticker price in order to qualify for this program.” So clearly, we felt that the price was going to go up, but a lot of people feel that this is an opportunity for dealers, who were coming hat in hand for any deal previous to this to suddenly begin gouging.

Vigeland: Alright. Phil Reed of Thanks for coming in a checking in on the Cash for Clunkers program with this.

Reed: My pleasure. Good talking with you.

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