Autoline on Autoblog with John McElroy
by John McElroy on Aug 21st 2009 at 6:19PM 
THE CLUNKERS PROGRAM EXCEEDED EVERYONE'S EXPECTATIONS
Despite a lot of skepticism from industry analysts, the "Cash for Clunkers" program exceeded just about everyone's expectations. It brought in new customers, cleaned out a lot of old inventory, and started putting auto workers back to work.
A lot of critics, me included, thought this was just a government giveaway that really wouldn't have much effect. And while there's no question it was a giveaway, it did meet the goals of the program: to help reduce America's dependence on oil and stimulate the economy.
Most impressively, dealers tell me that the Clunkers program brought in customers they had never seen before. They were people who would not normally buy a new car. The only reason they came into the showrooms shopping for new cars was because of the cash they could get for their clunkers. And the dealers are pretty sure they'll never see most of them ever again.
This is why the auto industry is pretty sure there's not going to be any "payback" now that the Clunkers program is over. Typically car sales crash after a big incentive program, because all it does is sell cars to people who were going to buy one anyway. The incentive just pulls them into the market sooner. But that does not seem to be the case with the Clunkers program. It brought used-car buyers into the new car market.
Automakers also love how the Clunkers program cleaned out so much of their inventory of small cars. Now they're boosting production. GM, Ford, Chrysler, Toyota and Honda are all hiring back autoworkers and even adding some overtime. This is where we could really see the stimulus effect of this program. Every auto job supports another seven to eight jobs elsewhere in the economy.
And there's no question the vehicles that were traded in were far less fuel-efficient than the ones they were replaced with. Most of the clunker trade-ins were old SUVs, pickups and minivans, which were replaced with new compact cars.
Of course, not everything went to plan. There were some glaring snafus with the Clunkers program. The government website that dealers had to use to qualify cars for the Clunkers program was a nightmare to use. It could take up to an hour to enter all the data required to qualify one car, only to see the system crash and have to start all over again. And so far the government has only paid dealers a mere pittance of the money that they're owed. In fact, GM and Chrysler had to provide cash to their dealers just to keep them going until the government reimburses them.
But in terms of boosting car sales, reducing inventory, encouraging fuel efficiency, and stimulating the economy, the Clunkers program pretty much did everything it was supposed to do. All the dealers and car companies I've talked to are surprised and delighted by the results. And I have to confess, so am I.
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Despite a lot of skepticism from industry analysts, the "Cash for Clunkers" program exceeded just about everyone's expectations. It brought in new customers, cleaned out a lot of old inventory, and started putting auto workers back to work.A lot of critics, me included, thought this was just a government giveaway that really wouldn't have much effect. And while there's no question it was a giveaway, it did meet the goals of the program: to help reduce America's dependence on oil and stimulate the economy.
Most impressively, dealers tell me that the Clunkers program brought in customers they had never seen before. They were people who would not normally buy a new car. The only reason they came into the showrooms shopping for new cars was because of the cash they could get for their clunkers. And the dealers are pretty sure they'll never see most of them ever again.
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John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
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John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
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This is why the auto industry is pretty sure there's not going to be any "payback" now that the Clunkers program is over. Typically car sales crash after a big incentive program, because all it does is sell cars to people who were going to buy one anyway. The incentive just pulls them into the market sooner. But that does not seem to be the case with the Clunkers program. It brought used-car buyers into the new car market.
Every auto job supports another seven to eight jobs elsewhere in the economy.
Moreover, dealers tell me they expect to see a slow but steady stream of customers coming into their showrooms going forward because there's a lot of pent-up demand out there. There are several million customers who could afford to buy a new car right now, and would have no problem getting any financing. But they're unsure about where the economy is headed, and some of them worry about holding unto their jobs. They're not about to plunk their hard-earned savings down on a big-ticket item like a new car. But if the economy starts to pick up, and consumer confidence rebounds, they'll be back in the market right quick.Automakers also love how the Clunkers program cleaned out so much of their inventory of small cars. Now they're boosting production. GM, Ford, Chrysler, Toyota and Honda are all hiring back autoworkers and even adding some overtime. This is where we could really see the stimulus effect of this program. Every auto job supports another seven to eight jobs elsewhere in the economy.
And there's no question the vehicles that were traded in were far less fuel-efficient than the ones they were replaced with. Most of the clunker trade-ins were old SUVs, pickups and minivans, which were replaced with new compact cars.
Of course, not everything went to plan. There were some glaring snafus with the Clunkers program. The government website that dealers had to use to qualify cars for the Clunkers program was a nightmare to use. It could take up to an hour to enter all the data required to qualify one car, only to see the system crash and have to start all over again. And so far the government has only paid dealers a mere pittance of the money that they're owed. In fact, GM and Chrysler had to provide cash to their dealers just to keep them going until the government reimburses them.
But in terms of boosting car sales, reducing inventory, encouraging fuel efficiency, and stimulating the economy, the Clunkers program pretty much did everything it was supposed to do. All the dealers and car companies I've talked to are surprised and delighted by the results. And I have to confess, so am I.
###
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Reader Comments (Page 1 of 2)
DiRF 6:22PM (8/21/2009)
Focuses and Corollas for all!
Reply
Matt 7:09PM (8/21/2009)
I'd rather have bird flu, swine flu, SARS, anthrax and rabies before I drive that POS Focus or any other small, anemic, cheap crackerbox car.
PhattyDre16 1:26AM (8/22/2009)
@Matt
I for one would love to see you with bird flu, swine flu, SARS, anthrax or rabies. I would die happy. : )
John 8:01AM (8/22/2009)
@PhattyDre16
Why would you say 'or rabies'? It should be 'and rabies' for Matt.
Farmboy 2:12PM (8/22/2009)
I thought Matt already had rabies.
DayShifter 6:36PM (8/21/2009)
"But in terms of boosting car sales, reducing inventory, encouraging fuel efficiency, and stimulating the economy, the Clunkers program pretty much did everything it was supposed to do. All the dealers and car companies I've talked to are surprised and delighted by the results. And I have to confess, so am I."
Ok, this man is paid to do this, lets see who opinion I should believe more John, or the random "I hate Obama... AutoBlog troll".... hummmm decisions, decisions, decisions.....
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ronnie schreiber 8:02PM (8/21/2009)
I respect John's opinion and he's right about the program having some success, but the C4C program is hardly an endorsement of Pres. Obama's agenda. It moved some metal. Sure it did, the gov't was giving away free money. Doh! It also hurt charities already hit by IRS changes on car donations. A large number of serviceable used cars that could have been used by someone who needed to get to work or run their business were taken out of the fleet, creating an economic difficulty for those folks who cannot afford to take advantage of C4C. Killing all those Jeep Cherokees, the most durable car sold in North America for the last 2 and a half decades, was criminal. At least the cars sold were mostly inventory and not new production. If a used car is scrapped and replaced by a new car, that new car would have to be significantly more efficient with fuel to offset the energy costs of building the new car in order to achieve any kind of ultimate energy savings.
Furthermore, as John points out, the management of the program has been a dismal failure, outside of whatever economic benefits there might be. Dealers haven't been paid. Tamaroff near Detroit said they'd gotten 2 checks, and 2 disapprovals. The disapprovals are going to be a nightmare. The cars have already been delivered to customers.
The same people who can't manage a gov't giveaway program say they will manage our health care. The dealers are waiting for checks. You'll be waiting for a CAT scan, your grandma will be disapproved for a hip, and your doctor, like the dealers, will be waiting for a check.
And that's without even talking about the fiscal consequences of the gov't borrowing yet another $3 billion to pay for the program.
BTW, I don't hate Obama. I think he's a gifted politician, and very wrong in his political ideology. I'd oppose any president who tried to do what he's doing. The involvement of the federal government in the private sector now may be even greater than when the gov't was in the hands of FDR's New Dealers. Since the New Deal may have both prolonged the Depression and laid the seeds for unsustainable UAW costs (see the Nat'l Labor Relations Act) that brought down GM & Chrysler, I'm not so sure that's a good thing.
The President is a man with virtually no experience in the private sector. He has no idea how wealth is created because he has never created any wealth beyond selling his own persona as part of a campaign for the White House. I'll give him credit as a successful author, though without his political success, he'd never have been published. He's lived a privileged life since before college, and except for his books, his paycheck has always been paid out of someone else's hard work, not his. Sorry, but working as a professor doesn't get as much cred with me as being an entrepreneur.
God bless the souls of the founding fathers. They were suspicious enough of the dangers of democracy that they wanted a Senate, appointed by the states, but they recognized that ultimately that power resided with the people, so they made sure that the House of Representatives had to stand for elections, the entire House, every two years, and each member represented a district, not a party. A district whose voters could vote for his opponent. Ultimately the people are in charge through the House. The House can impeach a president, forcing him to stand trial in the Senate, and the House can also impeach members of the Federal judiciary, including the SCOTUS. If you can fire someone, you're the boss. There are not three co-equal branches of gov't. The executive and judiciary, with all their power, ultimately answer to the people. The House also holds the purse strings. You can't give politicians that much power without making them accountable, and two years is about enough slack you can trust any politician with.
Cool system, no? It helps make sure that change is a deliberate process.
All those blue dog Democrats like their gold plated Congressional health plan and want to keep it. The beauty of the US House is that it makes the Representatives more accountable to their constituents than to their party or their party's president.
Ain't America beautiful?
DayShifter 10:24PM (8/21/2009)
@Ronnie
Thanks for that very lengthy version, of a warmed over, massaged, type of response I was referring to. You brought up some good points that have already been pretty much debunked elsewhere.... like the charities, and car donations......no one has definitively tied any slumps in the non-profits inventory to the program, just that they've seen a slight drop in donations... But the same drops was also noted that during these tough economic times people are keeping their cars a lot longer. The stronger points of the plan was stimulus and fuel efficiency, obviously a variable like dependability was not included, being that the best qualified (trucks, SUVs...etc) are also some of the most dependable. The question of serviceability seem to indicate not fully understand the point of the program. And uh... John did not point out "a dismal failure".... more like "nightmare" to use, but I do like your play on words.... real slick. And I never said the program was an endorsement of the President, just pointing out that the trolls like to tie anything negative, that they don't approve of......to the president. I guess they feel it helps their case. Sort of like how you slipped in the classic, "hey, this program sucks, think about what they'll do to your healthcare" line....You even used the term "grandma" Nice!! .... these responses are starting to look almost scripted, just enter in the random car topic to make it legit.
Ok and.... economists have been arguing about the effects of the New Deal since it's inception, so nothing will be gained by me and you engaging in something neither of us are qualified to theorize on. But on that issue of the government sticking it's nose into places it doesn't belong, has been going on long before our current administration, just like the ridiculous spending. The time to had said "STOP SPENDING!!!" should have happened in 2001, where it seemed like Congress was getting drunk off spending bills..... And I'd also have a ball digging into your assessment of the president, especially the comparison between educators and entrepreneurs, but again, this is not the site for that... And not sure where you were going with BlueDog Dems and Congressional Health care, for the most part, they all have the same type of plan, and they all want to keep it..... the greater goal is to try to get something like it for everyone, which in my view is commendable. But in the end, I do admire your faith in the private sector, and it might seem weird but my faith is even stronger. You see I don't like the dancing game we play between capitalism and communism. I believe in the true, private form of capitalism... (Laissez-faire) But these are topics not meant for AutoBlog, just addressing some of your points. So cutting this short, unlike you, I already feel I've burdened others enough with several paragraphs of non-automotive views.
alex 12:11PM (8/22/2009)
man i need to start reading more carefully... i totally missed the part of the article about health care.
balanced 6:41PM (8/21/2009)
Can't wait for all the repo's to start in about a year. Really brilliant idea, lets take people out of paid off cars, that probably run just fine and could continue to run with minor repairs, and throw them into a new car with financing and added insurance.
This was a short term solution that will bite the economy in the butt in about a year. Brilliant!
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Brent 11:12PM (8/21/2009)
I am also expecting a Cash for Clunkers bubble burst.
Tagbert 11:40AM (8/22/2009)
Having recently gone through loan approval for a mortgage, I can say that the lenders are being much more careful about who they loan to and how much. I suspect that the quality of these recent loans is much better than those written a few years ago. Probably the main risk for these people is that they might still be laid off. To prevent that, we need economic stimulation.... back to C4C.
Matt 7:09PM (8/21/2009)
Wow...could this guy be an even BIGGER apologist?
Although I will admit...this program did exceed my expectations... I didn't expect this program and the government to fail this hard, this fast.
Let's see:
-First we spend a BILLION dollars we don't have.
-Then the program runs out way too quick with the government claiming they didn't know demand would be that high
-Then we spend another 2 BILLION of money we don't have.
-Now we have people spending money to trade in their WORKING automobile and taking on a HUGE amount of debt.
-Then, in a disgusting display of our arrogance and waste, the working automobiles were destroyed.
-Then you had dealers not getting paid from the government...some with 5 MILLION in claims that have NOT been paid.
-Then the Govt. adds 1,000 workers...workers that were not budgeted in the 3 BILLION...so even more money we don't have.
-Manufactures are adding production just as the program is ending...that will result in a nice glut of inventory.
-FOREIGN companies benefited MOST from this USA stimulus.
-And then you had A LOT of dealers jumping out of the program because of the vast mismanagement by our government.
But hey...maybe this was just a bailout for the repo men...they will see the most benefit from the program.
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why not the LS2LS7? 7:36PM (8/21/2009)
running out too quickly isn't a failure.
You don't understand the goal of the program. The goal of the program was to piss money away paying people to buy cars. The goal was defined by the amount of money, not a fixed date. So the program reached its goal early. This is a success, not a failure.
It's like saying I'm going to stay here until I make 100 free throws, I figure it'll take me until 8:00. If I finish early, at 7:00, do I go "aw dang, I totally blew it, I made my 100 free throws too quickly"? Nope, you celebrate and go home early. So that's what's up here.
So the program is a success. I personally don't like what it was designed to do, but that doesn't mean I'm going to make up different criteria than the stated goals in order to justify calling it a failure.
Matt 8:36PM (8/21/2009)
It is a failure because it shows how out of touch with reality our government really is...
ronnie schreiber 8:14PM (8/21/2009)
It's like welfare. Does it work? It depends what your criteria are. If it means keeping people sheltered and fed with basic necessities, I guess it works. If it means getting people out of poverty, that's a different criteria. Like I said, the program moved metal. Imagine that. Stand on the corner and give away money and people take it. Who'd a thunk it?
The problem is that the government in general and a Democratic government in particular have difficulty managing the process of giving money away.
The question that I have for those who support the President is why do you love government power so much? Do you think you will be in power forever?
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why not the LS2LS7? 8:45PM (8/21/2009)
You make a basic error painting people you don't agree with into a box defined by why you don't like.
Just because you favor a particular program doesn't mean you are in favor of every government program. Any more than if you are against a particular program you are against all government programs. Same with authority. I don't like being pulled over for speeding any more than the next guy, but if my neighbor decides he's going to park his car in front of my driveway so I can't go to work in the morning, all of a sudden I start to see the value of the government telling people (my neighbor specifically) what to do.
Do yourself a favor, don't make out anyone who disagrees with you as suffering from a simple brain fault that you slap a label on ("facist", "liberal").
Jerry Hightower 9:29PM (8/21/2009)
I agree with balanced and Matt. How many of these vehicles do they expect to be repo'd? I personally saw approximately 100 "clunkers" on the back lot of a dealer. There were many good vehicles back there. I would like to have had some of them. Hot rodders and customizers would be drooling over the ones I saw. And the dealers say they are sure they'll never see these customers again. In other words, no repeat business.
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Tony 9:40PM (8/21/2009)
The government has absolutely no business messing with commerce in this way. +1 Matt
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Conundrum 11:13PM (8/21/2009)
So C4C was successful in:
1. Helping the US reduce dependance on foreign oil.
2. Helping reduce exhaust emmissions.
3. Help automotive companies move inventory and make money.
4. Helping put assembly line, part producers, and others back to work.
All for only 3 billion dollars? Hey I don't agree with the principle of giving a selected segment of the population my money (taxes). But if it was so effective, why don't we recall the unspent billions (majority) of the 780 billion stimulus package and dole it out a little at a time on similar programs until the economy gets humming again. Maybe energy star appliances for clunkers or fuel efficient furnaces for clunkers.
How can 3 billion be so popular, effective, and fast while 780 billion can be so worthless, wasteful, and slow to be spent?
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