Cash For Clunkers Putting Strain on Used Car Lots

Written by admin from on August 14th, 2009 | 0 Comments

I’ve got to be honest, I didn’t think of this consequence when I thought about potential disadvantages of the Cash for Clunkers program. But it makes perfect sense that it would happen.

From The Eagle:

By MICHAEL FELBERBAUM
Associated Press

RICHMOND, Va. — One man’s clunker is another man’s meal ticket.

Mom-and-pop used-car dealers are feeling the crunch as the old Caravans and Cherokees that provide their livelihood get traded in and banished to junkyards under Cash for Clunkers. By some estimates, three of every five of the used cars turned in for government rebates would have ended up on used-car lots or resold for parts.

While the Clunkers program helped push sales of new cars in July to the highest level in nearly a year, sales of used cars have taken a beating.

“We’re struggling, and a lot of us small guys are going out of business,” said James Dameron, sales and finance manager at Chase Motors in suburban Richmond, where sales are down about 30 percent.

About 40 million used vehicles are sold each year, four times the number of new cars, said Keith Whann, an industry expert and chief executive of Columbus Fair Auto Auction in Columbus, Ohio. About a third of the used sales come from independent dealers.

Mom-and-pop dealers typically sell just 20 to 25 vehicles a month and keep 40 to 45 vehicles on their lots, a fraction of the inventory for bigger dealerships, Whann said. So when the owner of a 1995 Ford Explorer opts for a new car and the old SUV goes away forever, the repercussions are felt quickly. Especially for a majority of these dealers who have fewer than six employees.

Even before the clunkers program, the market for used cars was the worst it’s been in years.

Fluctuation in gas prices and higher prices at car auctions, where used- car dealers get most of their supply, made the market volatile. Customers held onto older cars longer, making it more difficult to get trade-ins to beef up inventory.

Under the popular program, drivers get up to $4,500 for turning in a car or truck that got 18 miles per gallon or less when it was new. In exchange, they get a new ride with better mileage.

To meet the environmental goals of the program, the old cars must be taken off the road. Their engines are choked with liquid glass, and the guzzlers are carted off to be flattened.

About 60 percent of the cars traded in under the clunkers program would have ended up resold on used lots or at auctions, Whann said. If, as expected, 750,000 vehicles are traded in under Cash for Clunkers, that’s 450,000 cars and trucks that won’t make it to the used-car market.

At one dealership in Maryland, some cars that were still running well and likely had several years left on them — including a 2000 Chevy Z71 Tahoe that was in great condition — were junked as part of the program because of poor gas mileage.

Most of the clunkers traded in at Valley Automotive Group’s four Pontiac-GMC-Buick dealerships in Apple Valley, Minn., had many miles on them and were in poor condition. But there were a few eye-openers that would have made good used cars, said Jim Paul, co-owner of the automotive group.

Customers with much older clunkers are taking the government incentives because a car that may fetch only $1,000 to $1,500 as a trade-in vehicle will qualify for more under the program.

As the supply of used cars dwindles, it means higher prices.

“The guy looking for a cheap used car is having a hell of a hard time now,” said Greg Signore, 50, co-owner of Elm Auto Sales in Kearny, N.J. “This program is absolutely increasing the cost of the clunkers left on the market.”

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