Shutdown of Cash for Clunkers To Smack Down Industry Sales
August 26, 2009
Watch out for a world of sales pain now that the federal Cash for Clunkers rebate program is over, as data from Edmunds.com projects a serious decline in industry sales for the coming weeks.
Edmunds.com's proprietary tracking of purchase intent from visitors to its Web site -- which has proven to be a reliable leading indicator of actual near-term industry sales -- has plunged some 50 percent from its peak during the Cash for Clunkers program.
It is an effect analysts had warned was likely.
"Cash for Clunkers distorted the market in a way that benefited the industry for four weeks -- now the payback begins," said Edmunds.com CEO Jeremy Anwyl.
"Sales were stimulated at the start of the year's prime buying season, just when they were building on their own," he added. "People rushed into purchases that many would otherwise have made later this year. The result will be lower sales in the weeks to come."
Of equal worry, current consumer purchase intent is down 11 percent from the average in June, the month before the Cash for Clunkers program began on July 24 and ended Monday evening.
"Day by day, intent is slipping," said Edmunds.com senior analyst David Tompkins. "Sunday activity was down 21 percent from Saturday; Tuesday activity was down 16 percent from Monday."
And now, a low-pressure zone of new-vehicle sales that many industry watchers predicted would be a natural occurrence after the end of such a wide-ranging industry incentive may be exacerbated by one unanticipated result from Cash for Clunkers: depleted inventories are likely to translate into higher prices for consumers in the market going forward.
"The sales surge depleted inventories and pushed up prices. Additionally, with inventories at low levels, many manufactures have little reason to be generous with incentives," said Edmunds.com senior analyst Jessica Caldwell.
"Limited selection and higher prices will create further downward pressures on sales," Caldwell said. -- Bill Visnic
Posted by Bill Visnic at 9:21 AM under Analysis , Business , Featured , News | Comments (3) | digg this | Seed Newsvine
While C4C certainly had a short-term (positive) impact on car sales, but over the medium term this sales increase may have more of a psychological effect on people, possibly spurring sales in the next couple of months that may not have occurred for another year or more.
Unlike readers of sites like this, a lot of people just see that "car sales are up", and may think that, if things are picking up, they could go out and replace their ride. I'm not saying this definitely will happen, but the reality is that people are looking for some signs of "good news", and all my non-car-enthusiast friends and family have seen this burst of sales as a potential sign that the worst may be over, and its safe to go back into the economic water again.
My guess would be that this effect might keep sales from falling below their pre-C4C rate, and maybe help keep it slightly above. I would in no way expect this to sustain the rate observed during the program (and as the current data indicates, its off from its peak in the first couple weeks of the program).
I would also like to propose that, counter to the suggestion that low selection and higher prices reducing sales, that the opposite could occur. Scarcity of product and higher prices can create a sense of "urgency" in people thinking about buying, and they may be willing to pay the higher price and compromise on their requirements to get a car 'before they run out'. Again, there is a psychological component at work here. Again, I'm not saying this definitely will happen, but it is a possibility we can't discount. I just wouldn't bet any money on it :-).
Posted by: pushrod | August 26, 2009 at 10:32 AM
Mmmhmm. Wonder if this will turn out as accurate as the two previous articles talking about how much interest in the program had waned, one even predicting a high chance that all the funds wouldn't even get used. We saw how that worked out.
Posted by: dg0472 | August 26, 2009 at 11:54 AM
I for one plan to now keep my two existing vehicles as long as possible, in hopes that one day they will be worth more from a future cash-for-clunkers type program. And, if that future program does not arise, by stretching out how long I have owned by vehicles I will have saved on the high depreciation cost of a generation of new vehicle.
Posted by: maitlandking | August 27, 2009 at 11:06 AM