Cash for Clunkers a jolt for car sales, not a fix

[August 25, 2009]  WASHINGTON (AP) -- Now comes the hard part for the auto industry -- luring customers without big Cash for Clunkers discounts.

The popular government rebates gave auto sales a jolt, but it was only temporary. Now car makers and dealerships are forced once again to confront the worst market in a quarter-century.

While Cash for Clunkers may have proved there are still car buyers out there, it is unlikely the heavy demand will last. In fact, the big rush to car lots this month may have had the unintended effect of stealing sales from this fall and next year.

"I am really worried about this winter," said J.P. Bishop, president of a dealership chain in central Maryland. "If you didn't buy now, the only reason you are going to buy over the next three or four months is because your car died."

Cash for Clunkers, which offered drivers as much as $4,500 off the price of a new, more fuel-efficient car, proved far more popular than anyone imagined. Through Monday, dealers reported selling 625,000 vehicles in just a month with the rebates.

The program was set to come to an end Monday night. The government had set the deadline on estimates that most of the $3 billion set aside for rebates would be used up by then. Analysts initially figured the cash would last as long as November.

Cash for Clunkers had its complications: Congress had to race to approve $2 billion more for the program after the first $1 billion quickly ran out. Dealers complained the government was slow to reimburse them for deals they made on new sales.

Hours before the Monday night deadline for Cash for Clunkers sales, the government gave dealers an extension, until noon Tuesday, to file the paperwork to get repaid. The deadline for sales was not affected.

The Transportation Department granted the extension after the Web site set up to handle the claims was temporarily shut down from overload. Later Monday, the DOT said the Web site wouldn't be fully operational until Tuesday morning, and promised that dealers would have "time to submit pending deals equivalent to the time that was lost this afternoon while the system was down."

The DOT declined to elaborate further.

For the auto industry, coming off the program could be like a letdown after a sugar high.

Automakers and dealers got a reprieve from a dismal year of plummeting sales, big layoffs and the bankruptcies of General Motors and Chrysler. GM actually added shifts at some plants to meet higher demand.

Cars, trucks and SUVs sold in July at an annual rate of 11.2 million vehicles, the first time this year the figure has crept above 10 million. That's still far below the 16 million vehicles sold just two years ago.

While Cash for Clunkers has helped the auto industry stabilize, it will probably take a full economic recovery to give car and truck sales a lasting rebound.

"There's still a sizable amount of pent-up demand that's going to be felt," said Erich Merkle, president of auto industry Web site autoconomy.com. He said the "baton of Cash for Clunkers" could eventually be passed to a "fundamentally stronger economy."

Sure signs of that, of course, are a ways off. Unemployment is still high and the housing market still weak, enough to keep people shy about making big-ticket purchases, said Rebecca Lindland, a Global Insight analyst.

"While this Cash for Clunkers program provided a respite for an ailing industry, we are not out of the woods yet and we still have a long road to recovery," she said.

There also simply isn't much left for drivers to shop for -- especially when it comes to the most popular Cash for Clunkers vehicles, such as the Ford Focus, the Toyota Corolla and some hybrids.

GM, Hyundai, Toyota and Ford have ramped up production of their more efficient models because of inventory shortfalls, but those vehicles won't reach dealers for a while.

Automakers are approaching the next few months cautiously. They are moving to replenish dealer showrooms, but are wary about building too many cars if demand fizzles.

Ford, for example, has said it will boost production by 33 percent from a year ago during the fourth quarter. But Ford executives say that could change depending on customer demand.

GM spokesman John McDonald said Cash for Clunkers has been "very successful" for GM. He said the company estimates 30 percent of its sales increase during the period came from customers who didn't qualify for the government rebates but bought cars anyway.

But McDonald said that no one expects sales to keep going at that rate, and the automaker doesn't see the need to boost them through sales incentives.

"We think it's a good stimulus for the economy and a good way to get people interested in buying cars," he said. "But the idea to increase incentives to make up for this just don't make sense."

There are also signs that Cash for Clunkers may have sapped the market for the near future, with buyers taking advantage of the rebates and buying now rather than sticking to plans to replace their cars next year.

Last week, the automotive research company J.D. Power and Associates predicted Cash for Clunkers will flatten the auto industry's recovery by lowering sales next year. J.D. Power reduced its 2010 sales forecast to 11.5 million from 11.6 million.

"Because this was hot and heavy for such a short period of time, we are going to have a payback," said Jeff Schuster, executive director of forecasting at J.D. Power..

[Associated Press; By STEPHEN MANNING and KEN THOMAS]

Associated Press writer Ben Greene in Glen Burnie, Md., and Kimberly S. Johnson in Detroit contributed to this report

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