TOPICS > Economy

Popular ‘Cash for Clunkers’ Program Winds Down

August 24, 2009 at 12:00 AM EDT
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The government is ending its popular 'Cash for Clunkers' program two months early due to dwindling funds. Jeffrey Brown speaks with an automotive journalist about its impact on the auto industry and the economy.
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JEFFREY BROWN: Coast to coast today, car buyers were racing the clock to cash in their clunkers.

CAR BUYER: We’re coming out today just because we knew it was ending soon.

JEFFREY BROWN: The popular rebate program ends this evening, a month after the government began offering $3,500 or $4,500 vouchers toward the purchase of a new, more fuel-efficient vehicle with the trade-in of an older gas guzzler.

CAR BUYER: Four-wheel drive. It’s all heavy duty, lock-out hubs.

CAR BUYER: I get eight miles to the gallon, and I’m ready for something with better gas mileage.

JEFFREY BROWN: The idea: stimulate demand in the troubled car market and help the environment at the same time.

CAR SELLER: That’s what our economy needs, is some excitement to get the juices flowing. That’s what our economy is based on, is people buying things.

JEFFREY BROWN: The $3 billion set aside is almost gone. The first billion went out the door in less than a week; then Congress put $2 billion more in.

Car sales increased dramatically. Through this morning, dealers nationwide have submitted 625,000 vouchers worth nearly $2.6 billion.

Geoff Pohanka runs the Pohanka Automotive Group that has 15 dealers in the Washington, D.C., area.

GEOFF POHANKA, Pohanka Automotive Group: We’ve seen a definite upswing in business from the Cash for Clunker business. And our dealerships, our sales has spiked since the program came out. It’s been a wonderful program, and it certainly stimulated other businesses, non-Cash for Clunker business, as well.

JEFFREY BROWN: Sales were especially important for the American auto industry, part of which has been on government life support. General Motors hired 1,300 workers. Other carmakers are paying overtime.

As of Friday, American cars had accounted for some 40 percent of the sales in the program. The top selling vehicles as of last week: the Toyota Corolla, the Honda Civic, and Ford Focus, compact cars that get good gas mileage.

But there have been problems throughout the process. In the last days, many dealers have not yet been reimbursed. Some are waiting on millions of dollars. To date, just 10 percent of the rebates have been paid out.

A 13-page federal form is required for each clunker a dealer accepts. And with thousands of forms to file before the deadline at 8 p.m. Eastern time, dealers complained of government computer crashes or slowdowns.

GEOFF POHANKA: It’s currently frozen up now. It’s been three hours.

JEFFREY BROWN: Many dealers stopped offering the rebates over the weekend to make time to get the paperwork filed.

GEOFF POHANKA: It’s been a bureaucratic nightmare. It’s a very complex program, which should be a simple process, trade in an old car and a new car, but it’s made very difficult and cumbersome with the regulations.

JEFFREY BROWN: The National Automobile Dealers Association asked for a filing extension until August 31st. This afternoon, the Department of Transportation did extend the deadline, but just to noon tomorrow.

Despite the bureaucratic gridlock and other concerns, Pohanka says the program has helped the bottom line.

Driving auto and scrap sales

GEOFF POHANKA: For the consumer, it's been just a great program. They were probably going to see perhaps some record sales through this. Sales, new car sales throughout the United States will be up substantially. And what's interesting through this, it's stirred up the market.

JEFFREY BROWN: Also pleased with the program, the owners of auto junkyards, where many of those clunkers will end up.

JUNKYARD EMPLOYEE: Business is great. I mean, you can look around. There's plenty of people.

JEFFREY BROWN: At Crazy Ray's Used Auto Parts in Baltimore, sales are up. Clunker car parts are a big item.

JUNKYARD BUYER: Cars come in, in a lot better cosmetic condition, and I need a front bumper.

JEFFREY BROWN: And what can't be resold is scrapped and recycled. Scrap sales are a leading economic indicator.

SCOTT HORNE, Institute of Scrap Recycling Industries: When they see the economy starting to turn, they place orders for the basic materials that they use: steel, aluminum, copper. And in turn, those folks start buying scrap, because they need to make those new materials.

JEFFREY BROWN: Some of that may end up in new cars which will go to many empty lots around the country. The weekend rush to dealers may push auto sales for August over 1 million vehicles, a 2 percent increase over last August.

So, a bureaucratic tangle and a lot of cars sold, but what about the long-term impact on sales and fuel efficiency? We look at some of the lingering questions over Cash for Clunkers now with Paul Eisenstein, publisher of thedetroitbureau.com, an online automotive news service.

Well, Paul, let's start with the bottom line. Tell us how people in the industry and the experts are thinking about the possible economic impact, good and bad?

Measuring the boost to Detroit

PAUL EISENSTEIN, TheDetroitBureau.com: Well, I think, on the positive side, the industry is just happy to see anything stimulate sales. Your report just a moment ago mentioned that they may hit a million units in this past month, closing month. In fact, some estimates are that it will be even higher, that we could be seeing what they'd call a run rate, approaching some of the best years they had early in the decade.

The real question that everybody in the industry is asking, however, is, what's next? Once all these people have come through the showrooms, what happens now?

JEFFREY BROWN: So when we see the new cars out in the fall, the question is whether all those people who might have bought them already bought them, is that the idea?

PAUL EISENSTEIN: Exactly. It's a term the industry likes to call payback or pull forward, if you prefer. And it happens all the time. This has been a problem that the industry has had for a number of years.

They keep ramping up their incentive programs. You know, some cars in the last year, we've seen $10,000 in incentives, rebates, cut-rate loans, and the like. And every time one of the programs ends, sales fall off, and they have to come back with something even more lucrative.

The question is, are these clunker buyers folks that would have run their vehicles into the ground and probably bought something used when the vehicle failed, or were these new buyers who were going to buy anyway in September, October, November?

If it's the latter case, we've got problems ahead for this industry, because they've basically taken a lot of the sales that they would have had and moved them up. If these people are incremental sales, if these were folks that were not going to buy, then the industry has something good to crow about.

JEFFREY BROWN: And I assume that's all connected to my next question, which is, as we said, for example, General Motors puts some more people back on the manufacturing line, the question of whether that continues or that even grows.

PAUL EISENSTEIN: Well, we have seen almost every automaker, domestic and foreign, take some steps to increase production as a result of this, particularly on the low end of the market.

You have, for example, Mazda -- I was with a senior executive from Mazda just last week, and their Mazda 5, which is, if you will, a minivan, is in such hot demand right now because of the clunkers they're literally driving them up to the showroom and buying them right off the truck. They don't even have to warehouse inventory them.

Some vehicles are simply sold out completely right now. The industry has to increase production. The big question is, how much do you increase? Because if we do see this pull ahead, this pull forward, and they start boosting production too much, then all of a sudden they're right back in the same problem that they had at the beginning of the year, locked full of vehicles that they have to put $10,000 incentives on all over again.

Environmental benefits

JEFFREY BROWN: Now, I gather that the environmental- or energy-saving question is also kind of tricky. On the one hand, you have people trading up to get better gas mileage. On the other hand, we talked to a few people from environmental organizations today who thought it didn't make that big a difference and potentially took some of the spending money that might have gone to some other energy-saving programs. So weigh that for us. What's the discussion out there?

PAUL EISENSTEIN: Well, one of the things that surprised everybody was how many of the folks trading in on clunkers got the higher figure. Remember, you could get either a $3,500 or a $4,500 voucher, and that really depended on how much better fuel economy you got with your trade-in.

A lot more people were getting the bigger, the $4,500 voucher, which says that a lot of people were trading down. They were going to smaller cars; they were trading trucks for cars; or they were going for hybrids. And that hasn't been the trend.

Even $4-a-gallon gasoline has not had the impact on the market that Clunkers has had. The question is how long people will continue to follow this trend or if it's just a temporary switch.

The good thing is, you have a lot of guzzlers that were getting pretty bad mileage, often poorly maintained, emitting a lot of pollutants. These are being traded in for the newest models that get better mileage and are a lot cleaner.

But here's an interesting statistic. One particular analyst looked at some of the data, and he said that what you're finding is people who are trading in vehicles that didn't run very well are now going to be driving them more. So they'll still be using more gasoline than they did before, or at least more than they might have, because they're just going to be driving a lot more, even if the car is more fuel efficient.

JEFFREY BROWN: So bottom line here, a lot of questions still out there, but at least today, everyone's looking at that, this as mostly a popular success. Is that the way Detroit is thinking about it?

PAUL EISENSTEIN: You could call it a miserable success. Nobody is happy with the way...

JEFFREY BROWN: A miserable success?

PAUL EISENSTEIN: A miserable success, because it has been pure misery for dealers trying to figure out how well the program is working. We still don't know exactly how many cars were sold, as the previous report mentioned. We still don't know how much money is actually out there that has to be paid back to dealers, whether, in fact, we've gone over the $3 billion limit. So there's all sorts of things that were not handled very well.

At the same time, we're seeing the strongest month that we have seen in, what, almost two years in this auto industry. It's the first time, a year-to-year gain, if everything goes through the way we expect, so that's the sort of success, even with the pain, that I think the industry is happy to have.

JEFFREY BROWN: All right, Paul Eisenstein, thank you very much.

PAUL EISENSTEIN: My pleasure.

RAY SUAREZ: Learn why one General Motors plant is hiring again thanks to hot sales of the new Chevrolet Cruze. To hear the story, find a link on our Web site, newshour.pbs.org, to NPR affiliate WKSU in Kent, Ohio.