Clunker Hangover

Man has it been a crazy couple of months to be in the car business. We went from the worst month in 25 years of new cars sales (February of 2009) to one of the best (August 2009) back to the second worst month (September of 2009) back to who knows what’s next. It’s been a truly insane time for us because it’s been so hard to predict what’s next. We had the best day we’ve had in two years at our West Valley store selling 20 cars one day in August for our slasher sale event. We were all so excited thinking the market is coming back that we loaded up on a bunch of inventory and had the biggest labor day event in our history which brought okay result but not what we were hoping for. Then September. Sales dropped off a cliff. A pin was dropped on our showroom floor and it sounded like a bomb! We were so quiet. There simply were no car buyers to be found. We had never ever experienced anything like it and we were not alone. Our new car dealer friends were in the same boat. So what does this all mean? What did the cash for clunkers program accomplish? We’re hearing from all the politicians that the clunker program was a huge success. That it pumped life back into the car industry and put the folks at the factory’s back to work. Really?Here’s what I think it did: I believe it drove up prices on new cars so high that any credit customers got on their clunkers was mitigated by the surge in demand. I believe it took a huge amount of perfectly good running vehicles off the road and destroyed them, driving up prices on used motors and making cars that the average Joe (who can afford a new car these days?) can afford much higher. I heard of folks trading in the highly sought after “Grandma Car”, you know the original owner vehicle with low miles and lots of life left. These highly useful and sought after vehicles were crushed and the drive train was destroyed. The politician would argue that we greatly improved fuel consumption as a result of the program. Folks, the car people purchased only had to get 2 miles per gallon better than the car they traded in. Did this single month of car sales really change the overall fleet of vehicles fuel economy? I would argue yes but a minuscule amount. Certainly not enough to justify 3 billion in government money.Edmunds.com did an analysis saying that 60,000 to 70,000 “clunker like” deals happen every month anyway. In August 200,000 such transactions took place. Transactions that would have happened eventually anyway without government intervention and without destroying cars. The program was also touted as helping the Detroit companies i.e. Chrysler and GM, government owned companies. Did it? Only two of the top 10 vehicles sold under the clunker program were domestic and guess who makes those two? Ford! Not government motors. Chrysler sales fell 15% from August 2008 and GM’s sales plunged 20% from a year ago. What a joke!So who did the clunker program help? The only two industries this false surge helped were the new car dealers because they could substantially mark up otherwise hard to sell units. But based on our experience the horrible drop in sales in September cancelled out any gains from August. The other industry would be the junk yards. They loved getting all those scrap cars for free thanks to our government. So what’s the moral of this story? Government: bug off! You do more harm than good. You have your place in this world. Keep building roads, schools and protect our country. Stay out of the car business!