TOPICS > Economy

Dealers, Detroit Look for Boost With ‘Clunkers’ Extension

August 6, 2009 at 12:00 AM EDT
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The government's popular "cash for clunkers" incentive program -- aimed at replacing gas guzzlers with more fuel-efficient vehicles -- nearly exhausted its $1 billion budget in just days. Analysts look at who benefits from the program and its effects on the troubled U.S. auto industry.

JUDY WOODRUFF: Next, the popularity of “cash for clunkers” and the push to extend the program.

NewsHour correspondent Kwame Holman begins with some background.

KWAME HOLMAN: Following the House’s lead, the Senate moved to pass a $2 billion extension of the program this evening. And for some dealers, that extra cash is critical.

CAR DEALER: We’re just in limbo of what happens next.

KWAME HOLMAN: This Atlanta Chevy dealer says the program has been good for sales, but…

MARK FROST, Jim Ellis Chevy, Atlanta, Ga.: As of last night, there’s a moratorium. We’re not doing any more “cash for clunkers” deals until we get word that the Senate has approved the additional $2 billion.

KWAME HOLMAN: Right now, he says he’s waiting for $800,000 worth of reimbursements from the government for his network of dealerships.

The program, officially known as the Car Allowance Rebate System, or CARS, offers cash back for trading in vehicles that get less than 18 miles to the gallon. If the new car gets at least four miles per gallon better mileage than the old, a buyer nets $3,500, and a 10-mile-per-gallon increase earns $4,500.

The improved mileage requirements are less strict for new light trucks.

The $1 billion set aside for the program was supposed to last until November, but it has been so popular that the money was used up in a matter of weeks. The federal Department of Transportation says that, as of yesterday, the program took 157,000 vehicles off U.S. roads, many disabled and headed to the scrap heap.

Dealers say that number is likely much higher. Many have had trouble filing paperwork with the government’s computer system.

MICHAEL KALINOWSKI, Palmetto Ford, Charleston, South Carolina: I brought it home. And at 2 o’clock in the morning when I knew everybody on the West coast was going to be sleeping, I put all my stuff in.

KWAME HOLMAN: The program has been a boon for the big three American auto manufacturers. Of the new cars purchased through the program, 45 percent are made by General Motors, Ford, and Chrysler. The remainder are from foreign manufacturers, several of which produce those cars in the U.S. Six of the most popular replacement models are from Japanese companies, including the top seller, the Toyota Corolla.

JUDY WOODRUFF: For a closer look at the program to date and some of the questions surrounding it, we turn to Ed Tonkin, the vice chairman of the National Automobile Dealers Association, a trade group. His company has 14 dealerships in Oregon that sell domestic and foreign models. He joins us from Portland.

And Bruce Belzowski of the University of Michigan’s Transportation Research Institute.

Gentlemen, thank you both for being with us. I’m going to start with you, Ed Tonkin. How well do you think this “cash for clunkers” program has done?

Gauging the success of the program

Ed Tonkin
National Automobile Dealers Association
I think it's been terrific, Judy, even better than anyone expected.

ED TONKIN, National Automobile Dealers Association: I think it's been terrific, Judy, even better than anyone expected. It's interesting because, as you see in the media, in some of the publications, people are wondering, is the stimulus program working, the government stimulus program? Here you have probably the most successful. You have action and then reaction.

The program came into effect on July 1. The regulations were promulgated and produced on July 24th. And once -- that's when it really took hold. There's been an explosion in business. It's been terrifically successful for not only auto dealers, but automakers, but the country as a whole, because this will keep the plants going.

JUDY WOODRUFF: Bruce Belzowski, what about in terms of getting gas guzzlers off the road and getting more fuel-efficient cars on the road? How do you size up the success?

BRUCE BELZOWSKI, University of Michigan, Transportation Research Institute: Well, when you look at the true numbers, there will probably be about 225,000 vehicles for the first round that will get taken off the road and new vehicles put on the road that are more fuel-efficient and give off less emissions. And that's a good thing.

But when you look at the total number of vehicles on the road, 260 million vehicles in the U.S. fleet, it's going to be a challenge to get that turned over very quickly.

Having said that, you know, if you don't start now, when are you going to start? And I really think it's heading the country in the right direction.

JUDY WOODRUFF: Bruce Belzowski, let me stay with you for a minute. What about from an environmental standpoint? I saw some numbers today that made it sound like, as you just suggested, a drop in the bucket. With all the carbon dioxide -- carbon emissions that are created in this country in a year, that this really is just a minor blip.

BRUCE BELZOWSKI: Judy, I think when I look at what's going on with this particular program from an administration perspective, I really see it as being part of a larger strategy from the Energy Department, in terms of the Obama energy plan and where they're going to go with this now and in the future.

We're trying to wean the U.S. off of fossil fuels and get better emissions from our vehicles, and this is a kind of a step in that direction. One could even look at this as a first step by the administration to put their toe in the water to see how this is going to -- how the people are going to react, how is it going to work in the marketplace.

And there are other levers that they can pull and other programs that they might want to institute in the future that may work even better than this or follow on this.

JUDY WOODRUFF: Ed Tonkin, you mentioned this has been a boon not only for dealers, it's been a boon for automakers. How much of a boon? We saw in the report that we just heard that, what, only 45 percent of these cars are made -- that are selling the best are made here in the United States. So what's the picture that you're getting of which cars are selling better, domestic versus foreign?

ED TONKIN: Well, Judy, let me correct that: 45 percent of the vehicles sold with this program are American company produced. Many of the Asian-made vehicles, you can't call them imports anymore, because they're actually produced here in America.

For example, the Toyota Camry is one of the top-selling vehicles under this program, and it's produced here in the United States. So you're talking about keeping factories open.

But also when you consider, Judy, that about one out of every six jobs in this country is somehow tangentially related to producing an automobile, you're helping suppliers, as well.

Now, because these companies that went through bankruptcy -- namely Ford -- excuse me, namely General Motors and Chrysler -- Ford did not -- they cut production for a while, so dealer inventories were thinning out to begin with. Now, with the accelerated demand and sales because of this program, dealers are finding themselves almost running out of inventory.

So you're going to see about 600,000 vehicles built as a result of this program through the end of the year, I think.

Effect on the broader economy

Bruce Belzowski
University of Michigan
I myself have a clunker that I'm trying to trade in. And the last couple of days, I was looking to try to trade it in, and I really couldn't find enough stock in the Detroit area.

JUDY WOODRUFF: Bruce Belzowski, how do you see the effect on the broader economy? Or is there one?

BRUCE BELZOWSKI: Well, I'm looking at this from a broader perspective. It's really kind of a nice connecting piece to what's going on in the stock market.

So you look at what's going on in the industry, what's going on in the stock market, and you say, well, we can maybe actually build on this and maybe use this as a psychological push for the economy as we continue on, and this is -- you know, as one piece of the puzzle.

JUDY WOODRUFF: I want to come back to you, Ed Tonkin, because I saw one report today in the Associated Press that one of the results of this is -- and to quote the report -- "dramatically higher prices for some of these new cars. Because the demand is high, now there's a shortage." So my question is, is there really that much of a savings here for the consumer?

ED TONKIN: Well, I think there is. We have not experienced higher prices in our organization, and I'm not sure that that's accurate information. But when you combine the CARS rebate, which is $3,500 to $4,500, and many of the manufacturer incentives that have been added on in addition to that, you're probably going to get a better car-buying price transaction than you would otherwise, because the manufacturers are seeing this as such a tremendous opportunity to sort of piggyback. So you may not have those high incentives otherwise.

I want to also agree with the gentleman who's on with me today about the psychological effect. I think it's terrific. I think this acts as a catalyst. It's good news. It's positive. It gets people thinking about buying again. We're seeing successes with it. It's going to preserve and create jobs.

And I think good news is what we need. People's perception becomes their reality, and this is something that's working, and the government could feel very good about this, Judy.

JUDY WOODRUFF: And back to you, Bruce Belzowski. If the reaction is that good, can the manufacturers, can the dealers keep up with the demand, now that the Senate is -- you know, now that you're going to have this additional $2 billion available? What's going to happen?

BRUCE BELZOWSKI: Yes, I think that's a good question, Judy. I myself have a clunker that I'm trying to trade in. And the last couple of days, I was looking to try to trade it in, and I really couldn't find enough stock in the Detroit area, because so many of the dealers have been washed out of a lot of their products.

But I'm hoping that, you know, with the influx of the new money and also the factories continuing to build new products, when you look at the industry, this is kind of a crossover time, where they're beginning to build '10s and quitting building '09s. And whether those are both going to fill the gap and be available in August as opposed to September-October timeframe, that's what I'm a little nervous about. But, hopefully, the industry will sort this out for me.

JUDY WOODRUFF: Ed Tonkin, very quick last question. How do you see this ending, smoothly with everybody happy when it all is -- the $2 billion is out there?

ED TONKIN: Well, first of all, I see it beginning with me selling Bruce a car. I never want to miss a sale. So, Bruce, come out to Portland.

No, I think everybody will be happy. I think, as I said, this is successful. You're going to jump-start the economy. Anything that can jump-start our economy is good. It gives people hope and a vision, and we're starting to hear positive things in the media. I think it will keep plants going.

And, most importantly, it's going to keep jobs. This year alone, 400 General Motors dealers closed just because of market conditions between January and March before the bankruptcy, and those are lost jobs. So anything that can keep dealerships open, keep plants going is a win for our country.

JUDY WOODRUFF: Ed Tonkin, Bruce Belzowski, I'm glad at least we put the two of you together when it comes to a car. Thank you very much.

BRUCE BELZOWSKI: So am I. Thank you, Judy. Thank you, Bruce.

ED TONKIN: Thanks, Judy.