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The Cash For Clunkers aftermath…

Posted on: August 24, 2009

cash for clunkers aftermath

If there was one pocket of the auto industry doing remotely well this past year, it was used car dealers.  While the recent Cash For Clunkers program did boost new car sales, it also accounts for 7 percent of the expected decline in used car sales in 2009, according to industry research firm IBISWorld.

“Of course, there are winners and losers,” explained George Van Horn, senior analyst with IBISWorld. “Dealerships selling used cars will invariably get the short end of the stick, as the program has created a greater number of substitute consumers to purchase new rather than used vehicles.”

New car sales this year are estimated to be 20.5 percent lower than in 2008, down to 10.5 million.  But if the program  was not implemented, IBISWorld estimates total new car sales would be  about 700,000 units fewer in 2009, at about 9.8 million (representing a 25.8 percent decline).  So far, the most popular vehicle purchases and trade-ins are as follows:

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Light trucks were the most traded-in vehicle, which is a net positive for the program’s goal in encouraging Americans to drive more environmentally-friendly, fuel-efficient vehicles. And while critics are quick to argue how most of the cars sold will actually benefit foreign companies like Toyota, General Motors ranks second as being a top manufacturer for new vehicles purchased:

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Among others to reap the benefits of the program are finance and insurance companies.  Even with a $4,500 maximum cash rebate, lenders and insurance providers will both benefit from the higher fees associated with increased loan volumes, loan balances and higher car values on the new cars purchased.  At the other extreme, with all that clunker clutter, salvage yards will be a lot busier than usual. 

“Cash For Clunkers strives to induce consumer spending on fuel-efficient cars, as well as give the auto sector a boost by helping dealers generate turnover. The program has been successful in doing just that, but it’s really a short-term fix, not a long-term solution,” said Van Horn.

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