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One of the beneficiaries of the Obama Stimulus Plan has been the auto industry, and recently the “Cash For Clunkers” program has been in the spotlight. The program, which is designed to provide incentives to new car buyers and help struggling automakers to make sales, was originally given a budget of $1 billion dollars. After less than a week, the government shut down the program, saying that the billion dollar budget had already been exceeded. Apparently demand for the program was much heavier than anticipated.
The program was a great incentive for people considering the purchase of a new car. To participate, a buyer simply had to trade in a car that got less than 18 miles to the gallon in combined highway and city driving for a more fuel efficient vehicle. In return, the buyer would get a voucher for $3500 to buy a car with gas mileage that was better by at least 4 miles per gallon. The value of the voucher would increase to $4500 if the car improved the driver’s gas mileage by at least ten miles per gallon.
Car lobbyists have been pushing hard to get the program up and running since its proposal. The unemployment rate in the state of Michigan, where most U.S. made cars are made, is currently more than 14%. Car dealerships around the nation have suffered from a lack of new car buyers, and this program is getting buyers in the door.
Many new car buyers are combining the Cash For Clunkers voucher with incentives already in place from automakers and getting pretty amazing deals. One buyer reported buying a brand new Chrysler PT Cruiser for less than $9000 total after combining his $4500 rebate with a $4000 manufacturer’s rebate that was already being offered. Thousands of other buyers took advantage of similar offers within the first few days of the program, which started on July 24th.
Less than a week after the Cash For Clunkers program started, it was unexpectedly halted. At first the reasons for the program abruptly ending were unclear, but it was soon being reported that the $1 billion budget for the program had already been exceeded. Lawmakers met and determined first that all deals would be honored through the weekend, and then decided to allocate an additional $2 billion to keep the program running.
Although the program has been considered a success, there is still some uncertainly among car dealerships. Dealers are expected to extend the credit to new car buyers after a lengthy application process is complete, but it could take up to a few months for the Department of Transportation to review and approve each application. Some dealers are concerned that if for some reason an application is denied, they will be out the amount that was credited to the buyer as part of the incentive program.
Although dealers are thrilled with the increased traffic to their dealerships, the Cash For Clunkers program is a temporary band-aid on an industry that is still suffering mightily. Sales numbers for July and August should be close to what they would be in a typical, healthy economy, but when this program comes to an end, sales are expected to slip again unless further solutions are examined. Still, this could be a valuable kick-start to an industry that really needs one.
