Was "Cash for Clunkers" a Success?

The days are numbered for your bucket of bolts.

The government's "Cash for Clunkers" program is ending on Monday, as the $3 billion allocated to the auto-industry bailout rapidly runs out.

There have been more knocks on the program than knocks in some of the rickety engines being traded in:

  • Dealers are fuming over the government's slow processing of the claims. They have given car buyers as much as $4,500 in instant rebates, yet many of those rebates still await reimbursement. AutoNation (NYSE: AN  ) says it's still waiting for $45 million for its roughly 10,000 qualified trade-ins to date. 
  • In a shot to the jingoistic gut, the most popular car being disposed of is Ford's (NYSE: F  ) Explorer. The hottest purchases are for autos made by foreign manufacturers, with Toyota Corollas leading the way.
  • Cynics argue that since many of the old cars were owned free and clear, "Cash for Clunkers" is burdening buyers with a new set of payments.

The program is certainly working on other fronts. Sirius XM Radio (Nasdaq: SIRI  ) shares have soared since the program started, because many old cars heading to the shredder are being replaced by new cars with factory-installed Sirius or XM receivers.

Even General Motors has shifted out of reverse, with a recent announcement that it will ramp up production to meet demand for the program. Even if GM cars haven't been popular buys under the plan, things have to be working out better under "Cash for Clunkers" than GM's test drive on eBay (Nasdaq: EBAY  ) did. The dedicated GM listings received a whopping 632,000 visits in the first week, but they resulted in just 2,400 offers being sent to dealers. There's no data on how many of those offers ultimately materialized into sales.

Life after "Cash for Clunkers" will be interesting for dealers. Prices may have to soften, as buyers no longer count on the $4,500 rebates. Prospective buyers will also once again have the upper hand in the negotiations.

It will also be interesting to see how the auto-parts retailers fare. Advance Auto Parts (NYSE: AAP  ) , AutoZone (NYSE: AZO  ) , and O'Reilly Automotive (Nasdaq: ORLY  ) have been relishing an environment where drivers have to maintain their older cars. Now that some of the more stubborn vehicles are being scrapped, will comps suffer?

Finally, what about gasoline dealers? Gas prices have been inching higher, even as this program's popularity replaces fuel guzzlers with more efficient vehicles. Obviously, crude oil prices are a global matter -- and the improving economies abroad will trigger demand -- but stateside pumpers are likely to get pinched.

What do you think about the "Cash for Clunkers" program? Was it a success or a waste? Let us know in the poll below.

Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He owns no shares in any of the companies in this story and is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. eBay is a Stock Advisor pick and a former recommendation of Inside Value. The Fool has a disclosure policy.


Read/Post Comments (20) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 21, 2009, at 4:36 PM, mikecart1 wrote:

    First.

    Also article #258 for the year on SIRI by Rick.

  • Report this Comment On August 21, 2009, at 4:43 PM, plange01 wrote:

    with both GM and chrysler to fail by the end of the year for smart car owners who unloaded these two brands clunkers was a great success for the few foolish enough to buy them well one is born every day...

  • Report this Comment On August 21, 2009, at 4:47 PM, kinnedie wrote:

    CARS was certainly a huge success for Hyundai, Toyota and Honda! For six months they haD been loading the California desert with inventory. Since non North American cars were only included in the program in the last two weeks, HOW DID THEY KNOW!

    All that inventory financed by foreign governments, while American inventories were at all time lows due to lack of financing. As the CEO of Nissan said many years ago, THE BEST INVESTMENT IN THE WORLD IS AN AMERICAN POLITICIAN!!!

  • Report this Comment On August 21, 2009, at 4:55 PM, automaticaev wrote:

    its not really cash for a clunker if you have to buy something then the money is deducted from the sticker price of a car, in fact i wouldnt even buy a new car if they didnt take 5000$ off of the sticker price without a trade in.

  • Report this Comment On August 21, 2009, at 4:56 PM, automaticaev wrote:

    its more like a discount...

  • Report this Comment On August 21, 2009, at 7:17 PM, sportkarate wrote:

    Not really "cash for clunkers" since you have to buy one to get the money. I traded my 97 Mercury Mountaineer ($4500) that was in good condition, not a "clunker", because I was only getting 14 mpg. Got a new vehicle that is 32 mpg and estimated savings in gas is over $1500/year. Granted I have to pay higher regisration fee and insurance, but still saving me at least $1000/yr in gas with no expected bills to pay for repair for the next 5 years.

    Got a 2010 Chevy Equinox. Yes, it's GM. I haven't bought a GM car in my life because of the poort quality and horror stories. But this vehicle showed a lot of great improvement against its imported competition.

  • Report this Comment On August 21, 2009, at 7:19 PM, rudyardkipling wrote:

    its a great program for the democratic party.

    they put a gun to people who work's heads and extract grossly excessive taxes and then give this money to those who havent worked as hard so they can buy a better car. guess what, if they had let the ones who earned the money keep it, they would still have had their $4500 to buy a car themselves.

    democrat scumbags buying votes

  • Report this Comment On August 21, 2009, at 7:29 PM, Alwayzwrong wrote:

    Cash for Clunkers had to include foreign vehicles, because not doing so would violate WTO regulations.

    Hyundai was the real winner here. Their Assurance program was brilliant (and eventually copied by a few other makers) and their product value remains at, or near, the top. Also, with more Americans driving them, the public will perhaps warm up to them.

    IMHO, Hyundai will at some time in the future be thought of in the class of Toyota and Honda, perhaps not scoring as highly in initial quality or reliablity, but value (which I believe them to be best-in-class).

  • Report this Comment On August 21, 2009, at 7:37 PM, Alwayzwrong wrote:

    kipling...I wholeheartedly agree with you in one manner. I purchased 2008 Hyundai Sonata before cash for clunkers, because it was slightly used, yet sold way below what I would have had to pay for a 2009.

    It does bother me to see that I chose to save a little cash, when I could have afforded a much more expensive car only to see the same people with homes underwater driving a 2009 Toyota Camry or that ridiculously-expensive new Camaro (yes, it is nice, but that's beside the point).

    I'm paying for your home, and now I'm paying for your car. Uncle Sam 2, me 0. I didn't get $8,000 from Sam for my house, nor $9,000 for my cars (I bought 2 last year).

    Still, I don't think I would've included that last sentence.

  • Report this Comment On August 21, 2009, at 7:39 PM, SatRadioMan wrote:

    sportkarate: "I haven't bought a GM car in my life because of the poort quality and horror stories."

    ...and yet you owned a Ford. Go figure.

    Maybe if America built better cars, then more people would buy them instead of foreign. They have improved, but not caught up.

    My 12 year old Honda has 275k miles and hasn't been in the shop *once* for other than scheduled maintenance. There is *no* Ford/GM/Chrysler that can claim that feat.

    Back on topic: the clunkers deal was neutral. It's been a train ride for both the consumer and the dealer. As usual, the government underestimated it.

  • Report this Comment On August 21, 2009, at 9:09 PM, automaticaev wrote:

    i bought a brand new honda once and it was so flimsy 2 the wheel fell off and lotta other problems at 12k miles never buy one again.

  • Report this Comment On August 21, 2009, at 10:09 PM, automaticaev wrote:

    and to say "cash for clunkers" is a total lie. How can the government just lie to people like that? i hate those lies. buy a burger and fries and we give you 2$. No liars you take 3$ instead of 5 liars. lieing government go lie more.

  • Report this Comment On August 21, 2009, at 10:21 PM, automaticaev wrote:

    cash for car sellers. truth.

  • Report this Comment On August 21, 2009, at 10:23 PM, kinnedie wrote:

    SatRadioMan, I have a 1982 Ford E150 4.9 with 375k on it. One water pump, lots of batteries and tires, that is all the work done on this too old to be a clunker! I got a Fusion SEL I-4 for my clunker and sold my Camry Hybrid (resale was the only good thing about that thing). The Fusion better in every way, especially ride, quietness, handling and build quality. Love the leather interior, Sync and general solid comfortable feeling, plus I doubt that it will leave me in the night along side the road, like the Camry did twice!

  • Report this Comment On August 21, 2009, at 10:36 PM, kinnedie wrote:

    Alwayzwrong, WTO didn't stop exclusion rules in 16 other countries that have CARS programs. You can bet the house, that if Japan and Korea have a CARS program it will exclude American cars, especially the Mustang, Transit, Focus (which is built in Japan as a Mazda 3) and Fiesta!

  • Report this Comment On August 21, 2009, at 10:54 PM, thomastruxtun wrote:

    There are more junkers on my street that need to be crushed than the ones that are actually getting it. Secondly, are we really helping the American workers or the Corolla building Japanese? I am going to take my Cadillac down to the pik-and pull. I will earn 10 dollars per hundredweight for a 5500 lb piece of junk, and will not be saddled with 6 years of financed debt. So there.

  • Report this Comment On August 22, 2009, at 8:50 AM, TMFCop wrote:

    Cash for Clunkers was a dismal failure. It was nothing more than yet another wealth transfer program. Let's look at a few of the ways the program failed.

    First, while it was popular, why not? For people who were already going to buy a car they got a free $4500 handout. Others who wouldn't have purchased, but did so because of the program, now have a car they have to make payments on. As Rick pointed out, most of those clunkers were paid off. Now consumers have more debt.

    Since buying things we didn't need and financing it with credit is a large part of the economic problem we have now, the government encouraging consumers to take on more debt at this particular time is just stupid.

    Second, carmakers and dealers just got a short term boost. They stole sales from future periods and piled them into this one.

    But not only did they steal from themselves, they stole sales from used car dealers. Those buyers who might not have purchased a new car except for the handout will now not buy a used car. Further, since we took a whole bunch of old cars off the road, used car dealers now have less inventory which means prices on the ones they do have will go up.

    People who still couldn't afford to participate in the clunkers program and need to buy a used car will now face higher prices. So they're getting hurt too.

    But wait! Maybe it was all worth it anyway because it greened up the vehicles on the road. Nah! That ain't happening either. The average fuel economy of cars getting turned in was around 15 mpg while the average of those bought was 25 mpg. That 10 mpg "savings" equals about 71 million gallons of gas, a drop in the bucket compared to the 375 billion gallons used every year by the cars on the road.

    We also ended up removing only about 0.3% of the entire fleet of cars driving on the roads today, but at a cost of $3 billion. What a waste!

    So in short, there may be a few fleeting gains here and there but at a much worse cost for everyone else. As is usual, when the government gets involved, it's like squeezing a balloon: what you poke in on one side just pops out on another.

    Cash for Clunkers is a total failure.

    Rich

  • Report this Comment On August 22, 2009, at 11:50 AM, mikecart1 wrote:

    I actually agree with Rich. The only way this program would of been even slightly successful if the new car buyers were REQUIRED to buy a hybrid or electric car. We still got the same gas polluting trash on the road, they just consume gas at a slightly slower pace.

    Program rating: F-

    What else does this government have in store? I swear the people running this country are borderline stupid.

  • Report this Comment On August 24, 2009, at 6:40 AM, jimwhenry2408 wrote:

    Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)

    Henry

    Blogger

    www.cashforclunkersfacts.info

    http://www.cashforclunkersfacts.info

  • Report this Comment On August 24, 2009, at 4:13 PM, ReadEmAnWeep wrote:

    Something like 60% of all purchases from cash for clunkers are foreign cars. And 80% of the clunkers are american. So that means, no more mechanics ordering american parts now and in the future.

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