Cash for Clunkers

Despite people’s worst expectations, the government program to give people up to $4,500 to trade in their old cars for more fuel efficient ones spurred automobile sales, especially when dealers added their existing sales incentives.

Cash for Clunkers didn’t immediately restart any assembly lines, but it did clear the stockpiled inventory that has to be removed before manufacturing can resume. Now marketing specialists are studying the sales results for clues to forecast future demand that should reopen the lines.

Many of the program participants were loyal Detroit supporters upon whom the industry depends. The Department of Transportation listed the top ten swapped vehicles, and all the cars and trucks came from Chrysler, Ford and GM. Since the department didn’t give a percentage breakdown, like they did for new cars, it’s difficult to know from the published lists how many Japanese vehicles were brought in or how much these trade-ins reflected the relative popularity of what must have been durable cars and trucks made ten years ago when Detroit held a greater market share.

In general, the program began well for Detroit with these special buyers. At the end of the first week, 47% bought vehicles made by GM, Ford or Chrysler, a number slightly above the three companies’ market share that hovers between 44 and 45%.

However, as more people took advantage of the government’s offer, Detroit lost its preeminence. By August 14, the big three only accounted for 42% of the new car sales, and by the end of the program the number was down to 38.6%.

In the first two weeks, the Ford Focus was the top car, with the Dodge Caliber in eighth place and Chevy’s Cobalt in tenth. Two weeks passed, and Focus fell to third place behind Toyota’s Corolla and Honda’s Civic, while Chrysler and GM disappeared. By the end, the Focus was fourth behind Toyota’s Camry, but the Ford Escape had crept into tenth place.

While Bill Ford could feel vindicated that the changes he’d introduced in the past few years were finally being rewarded, General Motors could console itself the old strategy was still valid: that it had so many models in the market, that even though no one did well enough to make the top ten, the range of choices meant it still outsold their competitors.

At the end of two weeks, it had the largest market share, 18.7%, compared with Toyota’s 17.9%. However, the general drift of the market also affected them: by August 14, Toyota outsold them 18.9% to 17.6%, and by end Toyota was up to 19.4% while GM stayed at 17.6%. In 2008, before they went to Congress for money, GM’s share was 19.1%.

Ever since GM had problems with the Corvair in the 1960's, it has retrenched into the strategy that trucks and luxury cars were its core business. Unfortunately, the government’s sales numbers show people are no longer as interested in trucks. The nature of the program may have skewed the statistics by favoring people who had outgrown their pickups, perhaps because, at their stage in life, they no longer needed to haul things for their house and yard, and now needed a different type of vehicle for a changing family.

Still GM should be worried that at the end of the second week of the program, August 5, 83% of the participants brought in trucks, but only 40% bought new, more fuel-efficient ones. By the end of the program, August 26, the numbers remained essentially unchanged: 84% brought in trucks and 41% drove away with new ones. The cars it eschewed were the market.

Instead, GM’s chief sales analyst, Michael C. DiGiovanni, picked through the data and discovered strong interest in the Camaro muscle car and Equinox SUV. Over at Ford, the vice president for sales and marketing, Ken Czubay, saw hope for the F-series pickup trucks when sales rose for the first time since October of 2006.

These men seem to still hope the interest in fuel efficient automobiles is a passing flirtation, perhaps one encouraged by a matchmaker, but that people will return again and rescue their behemoths from becoming mere niche vehicles. Detroit is nothing if not consistent in its drive towards obsolescence.

Notes:
August 3. David Shepardson, "Big Three Sell 47 Percent of 'Cash for Clunkers' Sales; Ford Focus Top-seller," The Detroit News.

August 15. David Shepardson, "Japanese Sales Climb in 'Clunkers' Program; GM, Ford Slip Behind Toyota in Vehicles Sold," The Detroit News.

August 26. Department of Transportation press release 133-09, "Cash for Clunkers Wraps up with Nearly 700,000 Car Sales and Increased Fuel Efficiency, U.S. Transportation Secretary LaHood Declares Program ‘Wildly Successful’."

September 1. Bill Vlasic and Nick Bunkley, "Clunker Program Spurred August Sales," The New York Times.