Interest in the Cash for Clunkers program is slowing, and, if the current trend continues, vehicle sales could be back to pre-Cash for Clunkers levels by August 20, Edmunds.com calculates.Edmunds.com's analysis of purchase intent on the car-shopping Web site shows sales activity tied to the government's Car Allowance Rebate System (CARS) remains well above the period leading up to its July 27 public launch.
However, activity is 15 percent below the peak of the Cash for Clunkers frenzy, which occurred the last week of July and specifically on July 29. Barring any intervention such as a major incentive program or a significant uptick in the economy, sales will be back to pre-clunker levels by next week.
...The funding for the original program was low relative to the size of the auto market, creating a Gold Rush mentality where consumers hurried to take advantage before funding ran out. In fact, it largely sopped up the pool of buyers who owned clunkers and had the ability to buy or finance a new vehicle. In addition, automakers are running extremely low on inventories of vehicles eligible and popular for clunker trades.
With additional funding now approved, the sense of urgency to participate in the program is gone and the pool of eligible clunker owners who can buy a new vehicle has shrunk. Interest in the program is fading as fast as the first billion was used up. Quite possibly, some of the extra $2 billion will go untapped.
Despite this decline in clunker activity, however, Edmunds.com expects auto sales to be improved through the summer as the economy slowly improves and value-oriented consumers look for deals before the new 2010 models start arriving, said Jessica Caldwell, director of Industry and Pricing Analysis. "The real risk is this fall. Will the economy have picked up enough momentum to keep sales at these levels?"
Some of the extra $2 billion will go untapped? I find that a little hard to believe. But by the looks of it, CARS has already attracted the buyers who were on the fence and ready to jump. It will get progressively harder to get additional buyers to take the plunge--simple marginal analysis in action there. The low hanging fruit has been picked.
Remember also that the increase in sales at the end of the model year would have happened with or without CARS. And remember that auto sales right now are so low (with or without CARS) that there is practically nowhere to go but up. Look at the data (Econbrowser has some good charts). We are down hundreds of thousands of units per month relative to the past few years. And while the Big-Three's loss of market share means that some of that loss is permanent, a lot of it would have come back anyway. If CARS uses all $3 billion, at $4,500 per car, that would mean a few hundred thousand unit sales. According to this table, we're down about 30%, or just under 2 million unit sales YTD compared to 2008 (which was a really bad year as well). By my back-of-the-envelope calculation, CARS cannot even come close to erasing the sales deficit experienced in the last 6 months.
And that means that any meaningful increase in production going forward would have happened anyway. The increased sales from CARS could not possibly explain even a return of production to the levels of a year or two ago. The sales declines have been too large, and the CARS program too small.
But I have to give the politicians credit for setting up the illusion that they made the recovery happen. Sales (and production) will turn up eventually. They have nowhere to go but up. And when they do, CARS will get the credit, just you watch.
But make no mistake. When and if production recovers, it won't be because of CARS. The numbers just don't add up.
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