The Homa Files

I still don’t get it, but obviously I was wrong when I bet under on Cash for Clunkers (C4C). I disn’t think it would generate much showroom traffic, let alone sales.

Bit by all reports, C4C is the hottest promotion since Hoover UK almost bankrupted itself by offering free plane tickets with the purchase of a vacuum cleaner.

Where did I go wrong ?

First, I assumed that the $4,500 government rebate was just a replacement for a trade in allowance.  So, only real clunkers – worth less than $4,500 as a trade – would be advantaged.

Second, I assumed that clunkers were being driven by downscale folks who didn’t have the scratch for brand new rides – who bought used cars and drove them until they died.  These folks, I thought, wouldn’t be able to step-up to buy new cars.

Apparently, many rich folks make their teenage or college kids drive hand-me-down cars – maybe to humble them.  Dealers are saying that these are the clunkers being traded in.  So, the kids get fancy new bumpers for their Obama ‘08 stickers.

Third, and most important, I underestimated naturally pent-up demand. According to an analysis by Edmunds.com “in any given month 60,000 to 70,000 “clunker-like” deals happen with no government program in place .. over 100,000 buyers put their purchases on hold waiting for the program to launch.”

OK, I missed on the program’s initial take-up, but I still see problems:

1) Reports say that the bulk of deals are for non-Detroit brands. Oops.

2) Easy prediction: fraud will be prevalent, e.g. clunkers showing up on used car lots instead of scrap heaps.

3) It’ll be hard to go off the needle.  Over the past few years, auto companies have tried – with only modest success – to wean the market off deep price rebates.

Let’s see what happens when taxpayer-funded discounts end.  Hmmm.

Maybe they won’t. Ouch.

Even so, gotta admit that it makes me smile to see the President touting Cash for Clunkers as his administration’s hallmark stimulus initiative.  That alone is worth a couple of billion dollars.

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Source for Edmunds data
http://online.wsj.com/article/SB10001424052970204619004574324350084909302.html?mod=djemEditorialPage

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This entry was posted on August 3, 2009 at 7:59 am and is filed under Autos - Travel. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.