A losing proposition
Who really won in the Cash for Clunkers program?
By Jennifer Hadley 10/14/2009
Afew months ago I pessimistically opined that the Cash for Clunkers program was in short, a bad idea (“Cash for Clunkers,” July 9). I still maintain that position, in spite of the fact that Transportation Secretary Ray LaHood called it one of “the best economic news stories we’ve seen.” I presume his position comes from the fact that participating dealerships by and large saw their sales spike (up 26 percent over July). And he’s probably proud of the fact that 690,114 “clunkers” were destroyed, theoretically replacing them with greener, energy-conserving vehicles.
Unfortunately I misplaced Secretary LaHood’s phone number, so calling to ask him what he thought the future of the auto industry will look like now that the program is over wasn’t an option. Instead I opted to call on two local auto industry employees, to see if they — like me — had a sinking suspicion that this program might have been enacted a little hastily. Actually I think the words I used were, “a poorly thought-out strategy where the government, even with good intentions, seems hell-bent on firing first, then aiming later.”
My first call was to Amanda Bruton, who sells online advertising to dealerships. She has close working connections with about 100 dealerships throughout Southern California. “Cash for Clunkers killed my month. The idea was great — to jumpstart a new business model — but what I saw were companies in over their heads. I do think that most of my dealers were successful with the program, but about 20 percent pulled out before the program ended because they blew through their inventory, or were overwhelmed with the added stress of paperwork.” In short, Bruton’s advertising sales plummeted during the time the program was in place.
But it’s not all bad news the way she sees it. “My job will undoubtedly rebound, as manufacturers ramp up production once again. I’m just afraid that we’re going to recreate the same situation we had six months ago, when dealers had too much inventory and too few buyers. Now that the program is over, the dealerships look like ghost towns.” But that will ultimately work in her favor, she admits, “as dealerships will need advertising to bring back consumers.”
My second call was to Merlin Froyd, Internet sales director at Sunrise Ford. In contrast to Bruton, his dealership prospered during the program, but he still fears its long-term implications. “We cleaned out a lot of inventory, but I’m deeply concerned for the future.” In addition to fears that buyers who may have come into the market late this year or next will now steer clear of purchasing, Froyd voices another concern.
“Many of the cars that we took in were in very good running condition. We were forced to destroy perfectly good cars.” Because dealerships were not allowed to resell the clunkers, 690,114 used cars were effectively removed from the used-car market. Had those cars been resold, the sales taxes and title fees paid on those vehicles would have gone back into the communities. Moreover, “lower income families who could have purchased an older, lower-priced vehicle have 690,000 fewer choices,” Froyd adds.
Unfortunately, through forcing destruction of these vehicles, nonprofits and charities also lost out, an issue that troubles both Bruton and Froyd. Moreover, both are worried that the lack of buyers over the coming months may have dire consequences for aftermarket suppliers and independent mechanic shops. Froyd brings up one other potential “loser” from the Cash for Clunkers program: the environment. “I’m all for going green. But the fact is that we are going to put much more money into creating new vehicles than the energy we would have spent maintaining many of these clunkers.”
However, there were some winners in this deal. People who received government help in purchasing a car won big. Dealerships for the most part won big, at least for the time being. But, unfortunately, it’s far too early to tell just how many people will ultimately lose from this program. I mean of course, aside from the taxpayers, who just lost nearly $3 billion.
Contact Jennifer Hadley at email@example.com.