Monday, September 21, 2009

The Inevitable Auto Purchase Slowdown

As I warned when cash for clunkers was announced, the only result would be the shifting of sales from one period into another and that overall sales for the year would be unpeturbed by the $3 billion spent by the federal government to take older gas guzzlers off the road. Dealer showrooms are quiet because people shifted their sales into the cash for clunkers period, rather than now.
But once the federal money dried up, so did the sales rally. Now, customers at dealerships like Silko Honda in Raynham are few and far between, and inventory is once again accumulating.

Manager Adam Silverleib said business was “pretty intense’’ as a result of the federal stimulus program, with the dealership hustling to accommodate customers and handle the piles of paperwork required for them to receive reimbursement on vouchers. “Now we’re kind of back to where we were in the spring,’’ he said.

In an attempt to draw customers back to showrooms, some dealers are offering new incentives, albeit none as enticing as a $4,500 for a rusting junker. Silko, for example, is promoting 2.9 percent financing on new Accords, along with other deals on its website.

Nationwide, customers snatched up 700,000 new cars, most of them foreign-made, and the government ended up paying out nearly $3 billion toward the purchases. But from the start, analysts predicted that Cash for Clunkers would not boost sales for the year. September’s sales swoon seems to be making their case. Car sales are usually slow after Labor Day, but because of the recession consumers this year are especially reluctant to say yes to major purchases. To make matters worse for dealers, most are still waiting for voucher reimbursements.

“It was probably, in the end, a complete waste of taxpayer money,’’ said John Wolkonowicz, a senior auto analyst at IHS Global Insight, Lexington forecasting firm. “The dealers, who were supposed to be the primary beneficiaries, many were forced into cash flow problems because the government didn’t pay them in a timely fashion.’’
Dealers now have to find other ways to close deals, including offering incentives such as lower financing rates, but none of those deals comes close to the $4,500 that could be offered through the federal program that ended last month after a tumultuous several week period when the federal website repeatedly crashed and dealers remain waiting for reimbursement from the federal government for the rebates.

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