The government's Cash for Clunkers program has rescued many auto dealerships from an otherwise moribund summer, creating what one dealer calls "a whole buying atmosphere."
"More people are buying, so it seems like the thing to do," says John Guido Jr., the general sales manager at Arlington Heights Ford. At his dealership in the Chicago suburbs, the program has nearly doubled the number of potential buyers coming into the showroom on an average Saturday.
The sales boom has even extended beyond the cars sold directly through the government-sponsored incentive program, which offers up to $4,500 for trading in older, gas-guzzling vehicles.
"There appears to be significant trickle-down effects for dealers from the Cash for Clunkers program," says Paul Taylor, the chief economist for NADA, the National Automobile Dealers Association. "The program has increased traffic even from those who don't qualify."
More Room To Negotiate
Guido says several potential buyers have brought in cars that are just outside the program's gas mileage restriction of 18 miles per gallon or worse. But these days, many dealers are able to offer better trade-in deals because used car prices are rising.
"There's a shortage of used cars," Taylor says. "If you're selling 6.5 million fewer new cars, you've got over 4 million fewer trades coming in, because 60 percent of new car deals usually involve trades."
For Guido, this means more room to negotiate. "There is some advantage in having a clunker right now, because that used car market has shrunk," he says. "As long as it's a decent car, we're willing to put in more than the Blue Book value."
Overall, the bulk of the sales at Guido's Illinois dealership are coming directly through the government's incentive program, known as the Car Allowance Rebate System. Between July 24 and early this week, he sold 134 vehicles, 100 of which qualified for stipends from the clunkers program.
"It has been an enormous opportunity for car dealers who had been struggling all along with little or no showroom traffic all year," says Jessica Caldwell, an industry analyst for Edmunds.com, a leading auto information site. "They've been waiting for something like this all year, and now they finally have something to capitalize on."
A Welcome Problem: Shrinking Inventory
One factor that appears to be making a difference is that the incentive program is from the government rather than an automaker or a dealer. "That in itself lends a bit of legitimacy for people who might have been skeptical beforehand," Caldwell says.
She adds that some dealerships are running advertisements that tout government rebates without offering details, which may drive extra customers into their showrooms.
At many dealerships, in fact, the biggest problem is the quickly shrinking inventory. Rick Collins Toyota Scion in Sioux City, Iowa, normally would have some 120 new cars on the lot. Today, there are about 15.
"Relief is coming, but I just hope it's soon," says Kirk Kneifl, the general sales manager at the dealership. "Put it this way: We're not running new car ads in the paper for the rest of the month."
Another frustration comes from delays in the government's processing of reimbursement claims. "Dealers just need the government to speed up the payment process for the clunker deals," Taylor says.
Indeed, the Greater New York Automobile Dealers Association said Wednesday that about half of its 425 members are pulling out of the clunkers program because of these delays, according to the Associated Press.
Carmakers are also struggling to keep up. General Motors, for example, said it is boosting production by building an additional 60,000 vehicles before the end of the year. But it's not clear whether the additional cars will arrive quickly enough.
"It's a Catch-22, where the auto dealers may need more supply now, but by the time it comes, it may be too late," Caldwell says. "In late fall, when auto sales slow down, the manufacturers may find themselves in a position where they have to offer large incentives again."
Sales were so intense during the program's first week, it ran through nearly the full $1 billion initially allocated by Congress. Lawmakers quickly added $2 billion more, although the pace of sales has cooled slightly.
"I don't think it's going to go quite as fast as everyone thought," Caldwell says. "But it still seems like it has legs, at least in the short term."
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