'Clunkers' program salvaging a bad year for car dealers

President Barack Obama signed legislation Friday that pumps another $2 billion into the popular "cash for clunkers" program. The program gives consumers up to $4,500 to trade in their older cars for more fuel-efficient vehicles.

Many Minnesota car dealers have called the program a big success. But it's unclear whether the boost from "cash for clunkers" will be enough to offset their huge sales declines earlier this year.

Nationally, dealers have submitted just over $1 billion in voucher requests, reflecting roughly 245,000 "cash-for-clunkers" transactions.

Several hundred of those transactions occurred at Morrie's Automotive Group, which runs dealerships around the Twin Cities metro area. So far, Morrie's has completed 425 "cash for clunkers" transactions, according to Cindy Wagener Robin, Morrie's director of operations.

Before the clunkers program took effect and pulled in all these customers, Minnesota car dealers' sales were down roughly 40 percent.

But Robin is optimistic that the program, which just got another $2 billion in funding, could erase the year-over-year declines her businesses had been seeing.

"We're hoping it will bring us closer to even; if we do a good job, hopefully we'll get that kind of a lift," said Robin.

"Dealers have been the big winners in this," said Michelle Krebs, an analyst with Edmunds.com, an automotive research provider.

"Dealers have been the big winners in this."

Edmunds is currently calculating the rise in dealers' profit margins from the clunkers program. The data is not yet available, but Krebs expect to see increases.

Yet, she's skeptical about how much the program can offset the industry's overall slump. Krebs says until the nation's unemployment rate drops and wages stabilize, the auto industry's sales rate won't snap back fully.

"We'll be lucky to hit the $11 million annualized rate," Krebs said. "That compares to a high of $16-$17 million for about five years in a row. So it's still going to be a very weak year, and next year is only going to be slightly better."

Scott Lambert of the Minnesota Automobile Dealers Association says it's too soon to tell how the clunkers deals will impact the Minnesota dealers' bottom lines. He won't get July data reflecting clunkers deals for another couple months.

But Minnesota has been ranking in the top 10 states in terms of volume of participation in the clunkers program.

Lambert is confident customers will keep coming, even after the program stops around Labor Day.

He does not believe the clunkers program has simply pulled customers from future months, in a way that will choke sales down the road. Instead, he says the clunkers customers are their own breed.

"Most of the dealers think these are just conservative people who had hung onto their cars for a long time and took advantage of this, and probably would not have come in if not for this program," said Lambert.

Lambert notes that low inventories could be an issue in securing future business. The fuel-efficient cars selling through the clunkers program will be in especially short supply.

But, Lambert adds, "In the world of things, that's a nice problem to have," because excess inventory is expensive for dealers to finance.

Lambert says used car inventory could also run low as a result of the clunkers program, because cars that would normally be trade-ins are getting junked instead, per the requirements of the clunkers program.

"So it may have a short-term effect on that business," said Lambert.

Cindy Wagener Robin with Morrie's Automotive Group says her company's used car sales have been crimped by the clunkers program. But she says some would-be clunkers customers do end up with a used car.

"You go through the process with them and they don't feel that they can afford or would qualify for a new vehicle. We're still able to work with some of those people for a used vehicle," said Robin.

Overall, Robin says, the clunkers program is getting more people in the door, and she's happy about that.

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