How Many Cars Can Cash for Clunkers Sell?

ABC's Charlie Herman reports from New York:

With the Senate on the verge of approving additional funding for the “ Cash for Clunkers” (or C4C) program, Edmunds.com reports that at the current sales pace, if sustained for the entire year, 19.6 million vehicles would be sold. Considering that in June the industry was selling at an annual rate of 9.69 units , auto sales have clearly exploded thanks to the C4C program. In addition, compare that to record level of 17.4 million sold several years earlier.

The auto website also reports the following:

Prior to C4C -- 39% of new car sales involved a trade-in vehicle. After C4C -- 51% of new car sales involved a trade-in vehicle

Prior to C4C -- 9% of trade-ins would qualify as clunkers. After C4C -- 39% qualify

Edmunds.com also estimated that people trading in their wrecks were benefitting financially as well. It estimates that the average value of the clunkers was $1,475. As the rebates range from $3,500 to $4,500, car buyers are benefiting. And they will save money at the gas pump as well.

Also, it’s interesting to note that according to Edmunds.com, there sure are a lot of American-made low mileage, clunkers out there. Prior to the launch of the program, half of the models (5 out of 10) traded in were foreign (all 5 were Japanese). Once the program began, 100% of the trade-ins were from Chrysler, Ford or General Motors.

The C4C program and the surge in sales could be good news and bad news going forward. Good news because it will clear out auto dealers inventories of cars and trucks, especially before the new models start to arrive later this fall. It could spur overall economic growth, lead to more jobs and even push up GDP for the current quarter. It might be bad, however, because there could be a huge drop off in sales after Labor Day when the program is expected now to expire. As consumers get used to incentives and sales, and if there are any delays getting approval from the trade-in, could there be more pressure on the government to continue the program if and when the additional funds are used? Car buyers, auto dealers and auto makers would probably be happy if the program meant sales stay at these elevated levels. Will some point to this program as a successful stimulus program and argue it should be continued.

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