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Archive for Tuesday, August 25, 2009

Dealers expect post-Clunker letdown

August 25, 2009

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Keys to clunkers are held up by sales manager Mark Hranicky at a lot where nearly 90 cars were traded in over the past few weeks during the government’s Cash for Clunkers program in Topsham, Maine. Monday was the final day for the program.

Keys to clunkers are held up by sales manager Mark Hranicky at a lot where nearly 90 cars were traded in over the past few weeks during the government’s Cash for Clunkers program in Topsham, Maine. Monday was the final day for the program.

— 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 ended 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 today, 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.

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.

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