The Aftermath of Cash For Clunkers

Aug 25, 2009
With the Cash for Clunkers program now over, car dealers are about to find themselves with a lot of extra money from the recent rush of customers.  They may do well to save that money for a rainy day.

Now that Cash for Clunkers is over and customers have purchased a great deal of dealers’ surplus inventories, prices on auto dealers’ lots are significantly higher than they were before the program started.  The demand for new vehicles during Cash for Clunkers was so high that dealers were having trouble finding enough cars to fill orders; many customers ended up with cars in a different color or with different options than they originally wanted.

As of Monday morning, 625,000 claims had been made by dealers for a total reimbursement sum of $2.58 billion dollars.  The Department of Transportation had to extend the deadline for filing claims to after noon on Tuesday due to the rush of last-minute submissions taking down the program’s website.

The end of Cash for Clunkers is likely to cause a significant lull in auto sales for the next few months, but it may only be temporary.  During the program’s implementation automakers began restarting factories and adding shifts for workers to meet the demand.  This may help to kickstart a gradual increase in sales later this year, already predicted by market analysts.

Gary Ditts, senior vice president of global automotive operations at J.D. Power and Associates is confident that sales will rebound. “Improved consumer confidence and credit availability during the past six months have combined with the CARS program to lift industry sales out of their slumping year-to-date levels, which have been down approximately 35% year-over-year,” Ditts asserted in a press statement, adding that “Reduced inventories will likely hold back some of this momentum, but the automakers are moving quickly to ramp up production and rebuild stock.”

So when will it be a good idea to buy cars again?  Jeremy Anwyl, CEO of Edmunds.com, expects prices to fall sharply in the wake of the sales lull and new incentives will be presented to lure customers back to the showroom.

“I would probably wait until November,” Anwyl stated.