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Dealers
Bengt Halvorson
We've heard a lot about the positives of the Cash-for-Clunkers program in recent days. It gets gas-guzzling vehicles off the road in favor of more fuel-efficient, potentially safer ones, and has brought business back to blighted dealerships and auto malls.
In an immediate sense, it looks good, right?
But many sour sides might be starting to emerge, just as the program—officially known as the Car Allowance Rebate System (CARS)—was today given a second wind in the form of a $2 billion extension. We've seen several reports in recent days, including this one from the Reno Gazette-Journal, that the program is hurting the business of both used-car dealerships and auto-repair shops, with the latter reporting a rise in the number of canceled jobs.
That's a sharp turnaround from a trend that continued until recently this year, when the auto-repair business was booming—especially for independent mechanics—and many owners opted to make repairs instead of purchasing a new car. Now many customers are questioning repairs when they have the potential to effectively get a new car at a deep discount.
Meanwhile, some estimates project that the program could inject up to $18 billion into the economy, when including finance, insurance, industry suppliers, and related vendors.
That's an impressive figure, but it starts to look quite small when you consider the potential long-term impact to mechanics and the aftermarket. According to the Wall Street Journal, there are about 164,000 independent shops across the country.
A small two-person repair shop in Reno reported losing about $1,400 in repair work just over a few days. If this is happening across the country, that's a significant economic impact that also needs to be taken into account. So it's likely the long-term economic impact to mechanics could easily be in the billions.
The WSJ also reports that the automotive aftermarket as a whole could prove one of the biggest losers; it's a $250 billion industry that employs $4.6 million people, including those independent mechanics.
The Automotive Service Association (ASA) had lobbied Congress unsuccessfully to add a repair option—like those currently provided by Texas and California—to the bill.
Calculating the economic affects of the Clunkers program is going to be very complex. For instance, salvage yards and parts resellers are slated to profit from the process initially, although it might lead to lower prices on used parts for some popular Clunker trade-ins. According to a Spokane Spokesman-Review report, citing a local parts recycler, it should lead to the "cheapest parts in decades."
There's also concern that the 750,000 jalopies that are projected to be taken off the road could reduce the nation's overall supply of used cars by nearly five percent, according to Kelley Blue Book, and pinch supply, driving up values for used cars—temporarily, in a scenario that might end up hurting used-car dealerships and low-income families even more in the end.
Even from an environmental standpoint, there's no clear answer yet. The environmental cost of building that many additional vehicles is significant, and replacing older vehicles with new ones instead of simply scrapping them might actually slightly increase vehicle miles traveled (VMT), not leading to the supposed cut in gasoline consumption.
The CARS extension allows enough funds for about half a million additional trade-ins, and it could already be used up in a matter of just a few days. By all means, if you were thinking of getting a new car in the near future, now's probably the time.
And economically, maybe a few months after that we'll know whether this was a good idea or not.
ClunkersEnlarge Photo We've heard a lot about the positives of the Cash-for-Clunkers program in recent days. It gets gas-guzzling vehicles off the road in favor of more fuel-efficient, potentially safer ones, and has brought business back to blighted dealerships and auto malls. In an immediate sense, it looks good, right? But many sour sides might be starting to emerge, just as the program—officially known as the Car Allowance Rebate System (CARS)—was today given a second wind in the form of a $2 billion extension. We've seen several reports in recent days, including this one from the Reno Gazette-Journal, that the program is hurting the business of both used-car dealerships and auto-repair shops, with the latter reporting a rise in the number of canceled jobs. That's a sharp turnaround from a trend that continued until recently this year, when the auto-repair business was booming—especially for independent mechanics—and many owners opted to make repairs instead of purchasing a new car. Now many customers are questioning repairs when they have the potential to effectively get a new car at a deep discount. Meanwhile, some estimates project that the program could inject up to $18 billion into the economy, when including finance, insurance, industry suppliers, and related vendors. That's an impressive figure, but it starts to look quite small when you consider the potential long-term impact to mechanics and the aftermarket. According to the Wall Street Journal, there are about 164,000 independent shops across the country. A small two-person repair shop in Reno reported losing about $1,400 in repair work just over a few days. If this is happening across the country, that's a significant economic impact that also needs to be taken into account. So it's likely the long-term economic impact to mechanics could easily be in the billions. The WSJ also reports that the automotive aftermarket as a whole could prove one of the biggest losers; it's a $250 billion industry that employs $4.6 million people, including those independent mechanics. The Automotive Service Association (ASA) had lobbied Congress unsuccessfully to add a repair option—like those currently provided by Texas and California—to the bill. Used car salesmanEnlarge Photo Calculating the economic affects of the Clunkers program is going to be very complex. For instance, salvage yards and parts resellers are slated to profit from the process initially, although it might lead to lower prices on used parts for some popular Clunker trade-ins. According to a Spokane Spokesman-Review report, citing a local parts recycler, it should lead to the "cheapest parts in decades." There's also concern that the 750,000 jalopies that are projected to be taken off the road could reduce the nation's overall supply of used cars by nearly five percent, according to Kelley Blue Book, and pinch supply, driving up values for used cars—temporarily, in a scenario that might end up hurting used-car dealerships and low-income families even more in the end. Even from an environmental standpoint, there's no clear answer yet. The environmental cost of building that many additional vehicles is significant, and replacing older vehicles with new ones instead of simply scrapping them might actually slightly increase vehicle miles traveled (VMT), not leading to the supposed cut in gasoline consumption. The CARS extension allows enough funds for about half a million additional trade-ins, and it could already be used up in a matter of just a few days. By all means, if you were thinking of getting a new car in the near future, now's probably the time. And economically, maybe a few months after that we'll know whether this was a good idea or not.
Responses (9 total)
By Brian DR1665 #1, Posted: 8/7/2009
An interesting thing to consider, if this program might "inject $18 billion into the economy," how might the economy, and we the people, have been better served by spending that $21 billion (18+3, after all) elsewhere?
Had program participants not dug themselves deeper into debt for marginal increases in fuel economy (actual CO2 emissions are neither measured nor reported), how might they have spent that money every month that now goes towards their car payments? We see, here, that the mechanics on Main Street are already hurting because of this. The people too worried about getting saddled with a car payment now have one and will be looking to cut spending in other areas.
Ah well. So long as GM and the lot can keep building cars like it's 2005, right? Who cares about actual demand?
By John Voelcker #3, Posted: 8/8/2009
@Brian: You are assuming (incorrectly) that all the new vehicles are financed! Anecdotal reports from at least a couple of dealers say that roughly HALF the people who take advantage of the vouchers are paying cash, though I don't believe statistics are being gathered on this.
By pam #4, Posted: 8/8/2009
I don't think most folks turning in clunkers are paying cash for their new vehicles, that's a little far fetched.
Someone has to be hurt in this economy and apparently the chosen one has decided it should be the little guy rather than the big 3. Funny how a lot more imports are being bought through this plan.
By John Voelcker #5, Posted: 8/8/2009
@Pam: Explain to me how "little guys" are being hurt by Cash for Clunkers?
Also, as per the article linked below, 7 of the top 10 cars bought with clunker rebates are manufactured in North America (despite 4 of them being "import" brands): Corolla, Focus, Civic, Escape, Camry, Caliber, Cobalt. Only Prius, Fit, and Elantra are made overseas.
By John Voelcker #6, Posted: 8/8/2009
Sorry, forgot the link:
http://www.greencarreports.com/blog/1033891_cash-for-clunkers-the-data-on-why-its-working
By Steve Lewis #7, Posted: 8/8/2009
As far as cash for clunkers goes, I don't know enough about it to really say what's going to happen because of it.
I just got a kick out of the picture of the "typical" used car salesman that everyone is avoiding when they come to me for help as an auto locator in reno. Great job!
By Tom #8, Posted: 8/10/2009
Perhps the rate at which cash for clunkers is being utilized is a sign that they haven't been ambitious enough with their fuel economy requirements.
By Dave #9, Posted: 8/10/2009
@John Voelcker
Thanks for outlining exactly how the CARS program is working perfectly. We're not going to disagree with you there, its working perfectly to doll out money to an industry that has suffered the greatest bout of ignorance, arrogance and down right, management led idiocy this country has ever seen.
This money could have been used in many other industries to help stimulate the economy and help the environment.
This program is counter-productive to the process of evolution which we need to undertake, its doing almost nothing for the environment and helping people keep jobs in an industry that will shrink and change drastically, and more painfully if it continues, as Brian said, to build cars like its 2005.
By Cars4Charities #10, Posted: 8/11/2009
It isn't just mechanics and the aftermarket that are hurting as a result of cash for clunkers. Charity car donation is also hurting.
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