One on One with George Magliano of Global Insight
Monday, August 24, 2009
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SUSIE GHARIB: It's the end of the road for the government's cash for clunkers program. The $3 billion rebate plan ends tonight for consumers. But late today, dealerships were given an extension. They now have until noon tomorrow to submit their paperwork for repayment. Around the country, consumers filled auto showrooms to trade in their gas guzzlers for a more fuel efficient car. Transportation Secretary Ray Lahood says up to 800,000 new cars have been sold as a result of the program. This morning, car dealers submitted vouchers for more than $2.5 billion. Joining us now to talk about what's next for the auto industry, George Magliano, director of automotive research at Global Insight. Hi George.
GEORGE MAGLIANO, DIRECTOR, AUTO RESEARCH, GLOBAL INSIGHT: Hi, how you doing?
GHARIB: Good thanks. Let me begin first by asking you, was this cash for clunkers program worth it?
MAGLIANO: Most definitely. It has been a rousing success. It was amazing the way it started off with the first billion dollars and we thought when they put the extra $2 billion in things would slow down a bit. But obviously the consumers really warmed up to this thing and they have been going to the showrooms in droves. And it really is -- it's helped pick up sales in the short run and it's going to feed its way back into production and employment and into the economy.
GHARIB: Well, do you think that you're going see more momentum on auto sales? Will this spark a recovery for the auto industry?
MAGLIANO: No. What's going to happen is once the stimulus is removed, once the program is stopped and there's no more money coming, sales will drop back down and drop back down to the levels that they were at the beginning of the year. That's because of the recession, but what's happened is because of the program, we have seen maybe about a third of the buyers that have come in, this is going to be new business. People that would have never bought a new car or truck, that would have driven their clunker into the ground forever took advantage of this. This is additional business. It's also cleaned out the unwanted inventory of the 2009 models at the end of the model run, excellent for the dealers.
GHARIB: So what does this mean for the 2010 models? What does it mean in terms of car prices?
MAGLIANO: It means they come in clean and it also means at this point in time, we should be able to see better prices on the 2010. When I say better prices, less in the way of incentives, less in the way of those big give backs on the hood that the dealers have -- dealers and the manufacturers need to put on the car and truck to sell them. That's excellent.
GHARIB: Has this cash for clunkers program given you any indications of how auto makers are going to do going forward? Which auto makers are going to do better in the next phase?
MAGLIANO: Well, I mean, it's helped everybody, but obviously, the Japanese specifically, Toyota and Honda, have come really above on the top of the list. And Ford has done very well for the Detroit manufacturers.
GHARIB: How about GM and Chrysler? How did they fare?
MAGLIANO: Well, what happened was, they started out fast and they lost a lot of momentum and both of them blame it on the lack of inventory. So it's kind of hard to figure out. They were in bankruptcy. They shut down their plants for an extended period of time and when the sales really, the tidal wave came in, they were unprepared.
GHARIB: I've heard that some of the American auto makers are starting to ramp up production in anticipation of more demand. Are they jumping the gun here? Is this premature?
MAGLIANO: No. At this point in time, inventories are tight. By the end of the month they'll be extremely tight. The announced increase in production by all the manufacturers really is to replenish inventory, bring the stocks more back into line, normal stocks. If they continue to produce and over produce at the beginning of next year, then it's different. They have got to be in tune to the recession, to the fact that the market is going to go back pretty much to where it was and then it's going to build slowly as the economy develops momentum throughout 2010.
GHARIB: Now, I understand that during this cash for clunkers program that used car sales picked up as well. Do you see that continuing?
MAGLIANO: Yes, we do. Used car sales generally do better when the economy is soft and this time the economy was so weak, number one, it hurt all the entire market, both new and used. And of course, the issue with the used car prices and residual values was those trucks -- trucks and inventory, trucks coming back off a lease. That's helped the residual values and pushed them up and that's good. That's good for future business.
GHARIB: Very interesting information. Thank you so much for coming on the program, George.
MAGLIANO: Thank you for having me.
GHARIB: My guest tonight, George Magliano, director of automotive research at Global Insight.
