Cash-for-Clunkers Good for SAAR

The sales jump sparked by CARS “seems to confirm a very large degree of pent-up demand in the U.S.,” J.P. Morgan’s Himanshu Patel writes today in a research note.

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The U.S. government’s volatile cash-for-clunkers program likely will push July’s seasonally adjusted annual rate of sales past 10 million vehicles for the first time since December, according to a revised Ward’s forecast.

Industry sales for July were expected to exceed 900,000 vehicles, but on the strength of a consumer frenzy ignited by the stimulus, the month’s total likely will inch closer the 1 million-unit plateau, a level not seen since August 2008.

Ward’s had anticipated a July SAAR in the 9.7 million range based on a unit-volume increase of 40,000 to 50,000 units, compared with June.

Fueled also by separate incentive plans from auto makers, that jump now could include an additional 75,000 units on the strength of the federal initiative that offers consumers up to $4,500 if they trade vehicles with poor fuel efficiency for new high-mileage models.

The engine of the trade-in is required to be disabled, and then the entire vehicle crushed.

The extreme market reaction, which threatens the program’s sustainability, has broader implications, a leading industry analyst says.

“The bigger takeaway from this news, in our view, is that it seems to confirm a very large degree of pent-up demand in the U.S. marketplace for new vehicles,” J.P. Morgan’s Himanshu Patel writes today in a research note.

Mini distributing this bumper sticker to dealers.

A SAAR surge also could signal better times are ahead for the nation’s economy. “In nearly every economic cycle over the past 40 years, U.S. auto sales have led unemployment by (four to six) quarters,” Patel adds.

So if the SAAR has begun a turnaround, the national unemployment rate – which stood at 9.5% in June, excluding farm workers – should peak in the second-half of 2010, he suggests.

From the moment the Car Allowance Rebate System (CARS) launched this week, dealers have been besieged by would-be takers. Sales representatives at Taylor Kia in Toledo, OH, were “just going crazy,” says Steve Taylor, president of Taylor Automotive Family, which includes Hyundai and Cadillac franchises.

“It is really pulling out of the woodwork people that have good credit and have older cars and want a new car,” he adds, estimating his stores handled 100 cash-for-clunker transactions in four days.

The National Highway Traffic Safety Admin., which administers CARS, had estimated the nation’s 19,700 dealers could count on roughly 12 additional unit sales apiece through the duration of the program.

“Now the trick is trying to get the money (from the government),” Taylor adds, referring to paperwork bottlenecks that have effectively crippled the program. “It’s a complicated process.”

The cash-for-clunkers program launched July 24. Through July 30, just over 19,000 of the 23,005 dealers who submitted applications had been approved to participate, according to the National Highway Traffic Safety Admin., which is overseeing CARS.

Nearly 23,000 transactions valued at $95.9 million had been submitted by Thursday. Meanwhile, the CARS website has recorded more than 5.7 million visits since a publicity campaign was launched June 22.

“We’ve had over 1 million hits as of this week on our website,” says Mike Crowley, Ford Motor Co. marketing manager for cars and cross/utility vehicles.

Ford launched a CARS-oriented campaign June 24.

“We’ve been way ahead in communicating it to our customers,” Crowley says, adding the auto maker has seen a “rush” of buyers to its stores.

Whether the program will continue and, if so, for how long, remains today a subject of heated debate as indications suggest funding appears exhausted.

Congressman John Dingell, D-MI, says talks in Washington have generated a bill that would add $2 billion to the CARS coffer. In a statement, he says the new funding comes “from a Department of Energy program that has not yet spent any of its appropriated money.”

Sen. Carl Levin, D-MI, issues a statement today saying the White House is continuing to support CARS “so people should go to their car dealers now.”

Meanwhile, auto makers are seeking to leverage marketing opportunities associated with CARS. BMW AG’s Mini brand is distributing to its dealers a bumper sticker that reads: My Other Car Was Demolished by the Government.

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