Fears of a sales crash after rebates

After gorging on clunkers this summer, can automakers make it through the fall?

That was the question buzzing through the industry Thursday as the government announced that the popular "cash for clunkers" program would end at 5 p.m. Pacific time Monday.

Economists credit the program with reviving moribund car sales. But with the cash incentives gone, some fear the newly buoyant auto market could quickly crash in its wake -- just as automakers rushed to boost production in response to clunker-driven sales.

"Life after 'cash for clunkers' is going to be a tough one," said Jesse Toprak, vice president of industry trends at TrueCar, which tracks vehicle sales and pricing. He predicted "a steep decline in sales" after the end of the program, which gives out $3,500 and $4,500 vouchers in exchange for qualifying used cars.

Still, there's little doubt that the program, known officially as the Car Allowance Rebate System, has succeeded in boosting sales. According to a projection by J.D. Power & Associates, sales will top 1 million vehicles in August, the first time in a year that that milepost will have been reached.

By the time it concludes Monday, the program is expected to have easily reached the total $3 billion budgeted by Congress. According to figures released by the Transportation Department on Thursday, it has generated nearly 460,000 vehicle sales and claims for $1.9 billion in rebates. According to Toprak, once final figures are tallied, the program will probably account for about 700,000 new cars and trucks sold.

The program has been so popular, in fact, that it's depleted many automakers' inventories, prompting production increases after months of cuts.

Fritz Hitchcock, who owns Toyota dealerships in Santa Barbara, Northridge and City of Industry, said this week that clunker-fueled sales had reduced inventories dramatically. His City of Industry store, for example, typically has 350 to 425 new vehicles on the lot. As of Wednesday it had 48.

"I pulled all my advertising and so did most dealers," Hitchcock said. "We don't have any cars."

Last week Ford Motor Co. said it was increasing output by 26% in the second half, and on Tuesday, General Motors Co. said it would rehire about 1,300 employees to help ramp up production of several hot-selling vehicles.

Honda Motor Co., Toyota Motor Corp. and Chrysler Group have also said they would pump out more vehicles in response to demand.

Though the sudden bump in customers chasing vouchers has been a boon to dealers, it has also raised concerns that the program merely "stole" sales from September and October as people rushed to cash in before the program concluded.

Bruce Hamlin said his Guaranty Chevrolet dealership in Santa Ana sold just 13 new vehicles in June, before the incentive program began. Through three weeks of August, it's already sold 40.

"Probably half of those were clunker deals," said Hamlin, who also owns Tustin Chevrolet and contends that even people who discovered they didn't qualify for the trade-in program bought cars anyway.

The result, some fear, is that auto sales could be even lower in coming months than they would have been otherwise, and that could lead to disastrous inventory buildups once again.

Last summer's $4 gas prices prompted automakers to reduce stocks of trucks and sport utility vehicles, even as they rushed to build hybrids and efficient sedans. But when the economy went in the tank, nothing was selling, and carmakers couldn't cut production of all vehicles fast enough. Now, experts say, the industry's enthusiasm could be too strong.

"This last year has been the toughest ever for inventory management in terms of determining how much to produce," Toprak said.

Mark Fields, executive vice president at Ford, said he was not concerned about producing too many vehicles in the wake of the program. "We are carefully monitoring demand," said Fields in an interview this week. "We can adjust to demand as needed."

Before they can worry too much about future sales collapses, most auto dealers are still concentrating on getting paid for the sales they've already logged.

Through Thursday, just $145 million, or nearly 8% of voucher requests, had been paid by the government. In response, the National Automobile Dealers Assn. said Thursday that it was "strongly recommending that all dealers now focus their attention and efforts on submitting reimbursement claims prior to the looming deadline."

Dealer groups have raised increasing alarm that such payments were taking too long to process, and this week many dealers in New York decided to quit participating. GM on Wednesday said it would advance reimbursement payments to its dealers out of its own coffers to keep sales going.

The administration dismissed such concerns.

"This is actually a high-class problem to have," said President Obama in response to criticism of delays on a nationally syndicated radio show. "We're selling too many cars too quickly and there's some backlog in the application process. It's getting fixed."

One solution to all the woes would be to throw more money into the program, which called for $4 billion in funding in the original bill that went through Congress.

Asked about such a possibility, an administration official who spoke on the condition of anonymity said there was "no plan to seek additional funding."





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