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Cash For Clunkers Success A Positive Economic Sign

Consumers willing to buy cars when it's a deal

By Mark Huffman
ConsumerAffairs.com

August 3, 2009

The program, modest by Washington standards, began last week, offering consumers up to $4,500 if they would trade in their gas-guzzler on a new, fuel efficient car or truck. There were a lot of caveats and conditions, meaning consumers had to pay attention.

For example, the amount of the government subsidy was dependant on the gas mileage differential between the vehicle being traded and the new one being purchased. The greater that differential, the higher the subsidy. So consumers had to do a little homework before deciding to trade in their clunker and head for the new car lot.

But head for the car lot they did, in huge numbers. Within four days of starting the program, the government had run out of its allotted cash. The White House found itself in a public relations snafu when it was initially reported the wildly popular program was being suspended, but the House quickly appropriated an extra $2 billion. The extra money requires approval by the Senate.

Impressive sales

Lost in the dust-up over whether the White House suspended the program or it didn't is the fact that U.S. consumers purchased new automobiles last week in staggering numbers, after all but abandoning new car showrooms in the last eight months. Sales figures are not yet available, but anecdotal evidence suggests the sales tally will be impressive.

At King's Toyota in Cincinnati, small fuel-efficient models flew off the lot. Managers said their inventory was nearly cleaned out.

"It's been awesome, unbelievable," sales manager Greg Walker told WLWT-TV.

Other car dealers around the country reported similar experiences. Consumers brought in older cars that might bring $400 or less on a trade-in and were able to turn it into a $3,500 to $4,500 down payment on a new vehicle.

Yes, the government was handing out thousands of dollars, but consumers also had to come up with another $12,000 to $15,000 in cash, or take out a loan for that much. The fact that they were willing - and able - to do so suggests that much about this recession may be psychological as well as economic.

With all the talk of the last eight months about the plight of the economy, it's fair to assume that many consumers have been fearful of spending money on a major purchase. Many obviously had the means, but were held back by fear about the economy.

Game-changer

While the Cash for Clunkers program may have the short term benefit of helping car dealers clear their crowded inventory, its more lasting value perhaps could be as a psychological game-changer. Fear's spell over the U.S. consumer may be breaking.

Even people still caught in the grip of the recession appear to be shaking off the fear and taking advantage of the program to buy a new car. The Wall Street Journal reports that James Dunn, newly laid off from his job at a South Carolina manufacturing plant, used his severance check and his 1989 pick-up to get a new truck. Even though he's now out of work, he doesn't seem all that worried.

"The economy is picking up," Dunn told the Journal. "Seems like it, anyway."

Some complaints

Not everyone is happy with the clunkers program. In Cape Coral, Fla., a ConsumerAffairs.com reader complained that some consumers -- and dealers -- were abusing the program.

"A woman interviewed (on a local TV news program) said she had to have her car towed in because it didn't run," Donald of Cape Coral complained. "Isn't this an abuse of the program. If they are doing this what else are they doing to violate rules?"

On New York's Long Island, a consumer said he lost his $5,000 deposit when his clunkers deal with Habberstad Nissan fell through.

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