Summary
The” Cash 4 Clunkers" legislation will not be the industry saving catalyst for automakers or dealer’s congress anticipates. Rather, it’s just another example of senseless 'feel good' spending by a government who believe that every problem can be solved by a government program. I talk with auto dealers across the country everyday and so far, while none are going to complain about anything intended to spur new car sales, they also aren't running to fill up their new car order banks either. Dealership new car inventories are still way out of whack with the realities of the market in much of the U.S. The most popular observation is that the program will not reach the right number of the right people with the right trades for it to be as successful as hoped…I agree! The people driving the world’s "Hoopty's" a.k.a. "clunkers" with an ACV of $3,500 (and up to $4,500) do so not because they don’t want to buy or drive a new car ….they do it because they have credit challenges!
Analysis
The recent passage of the "Cash 4 Clunkers" legislation is another example of the reckless "form over substance" government spending lunacy that has been the hallmark of the Pelosi congress for the past 3 years. Every problem can't be fixed by throwing money at it especially when the fix is being offered by politicians who are more interested in having their name on some "green" legislation and getting re-elected than they are in gaining an understanding of what it's really going to take to get the industry back on it's feet.
Will this legislation sell some new cars that may not have been sold without it? Without question. Will it also take some older gas guzzling land yachts off the road and replace them with fuel efficient new cars? Absolutely! Will it reduce greenhouse gasses ....or reduce the 'carbon footprint' the older car would have left? Sorry Nope! The carbon footprint left by the process of building a new car will trump any savings realized by taking the older car off the road.
The opinions I have been getting from dealers I speak with everyday is that the program will not reach the right number of the right people ... with the right cars to trade ... and most importantly ...with the right credit profile to “tote the new car note” to inspire them to order as many cars as they can get and start dancing in the streets. The reality is that in this era of the "me me me" and "spend spend spend" “live for the moment” consumer mindset we are currently choking on…we rarely have to talk a customer into buying a nicer or newer car... (That is of course "if the numbers make sense") The challenge today is finding a marriage between a car the customer will buy and a how much a bank will loan them to buy it based upon their credit.. Most people don't buy or drive clunkers because they choose too. They do it because that’s all the bank is willing to loan them.
Don't get me wrong ...no one wants this program to work more than those of us in the industry. What haunts me and gives me sleepless nights, especially now that the government has more or less nationalized the domestic auto industry, are the words of former President Reagan who said: "If you want to make sure a good idea fails ...let the government run it" Before any business spends 1 billion dollars for anything they have to be confidant they would see a return far in excess of their original investment. I can't think of anyway that same general theory is at work with "Cash 4 Clunkers".
