Local effects of Federal program
The federal program that seems to have provided a much-needed spark for the American automobile industry has not had a dramatic effect here, local dealers say.
When it was launched, the Car Allowance Rebate System, commonly known as the Cash for Clunkers program, faced such demand nationwide that the government plan quickly ran out of money.
Initially $1 billion backed up the program, which offers up to $4,500 when a customer trades in a vehicle toward the purchase or lease of a more fuel-efficient vehicle.
Within the past few weeks an additional $2 billion was directed into the program to keep up with the demand, which at times exceeded dealer inventory, according to media reports.
“The program is designed to energize the economy, boost auto sales and put safer, cleaner and more fuel-efficient vehicles on the nation’s roadways,” according a statement on the program’s Web site www.cars.gov.
At Zappone Chrysler Jeep Dodge in Granville, owner Jim Zappone said the program seems to be pumping some life into the car-buying market in general.
Zappone’s is on the government list and signed up for the program. Zappone said he has made some deals as a part of Cash for Clunkers.
“We are (participating). It’s certainly brought people in,” Zappone said. “We’re not doing tons of them.”
Zappone said earlier strategies to bring in inventory while other dealerships waited paid off in the long run in sales. The federal Cash for Clunkers program has prompted inquiries from auto dealers outside the immediate area as inventories at larger dealerships in metropolitan areas have dwindled, according to Zappone.
“There’s a high demand around; there’s no question,” Zappone said, adding that people are starting get the message that new cars are affordable right now.
“It’s been good; the car market’s been good,” he said. With current dealer incentives combined with this program, Zappone said, cars are especially inexpensive right now. “How do you go wrong when you’re getting eight, nine or $10,000 off of a car?” he said.
Zappone has done some Cash for Clunkers deals but said the paperwork associated with them was a challenge. “We’ve done a few of them, but the paperwork … it’s a menagerie – there’s a lot to do to get the approval,” he said.
In addition to arranging for a scrap yard to take the clunker following the deal, Zappone said, it’s a matter of having a qualifying car on the lot since only certain new cars qualify as well.
The program is expected to run until the additional $2 billion in federal funding runs out, Zappone said.
Vittengl Ford in Fort Ann is signed up with the program as well. Vittengl Ford general manager Mike Robinson said he has done substantial Cash for Clunkers business since the program started, but the move is not without its risks.
“Half the people through the doors are immediate buyers and the rest are coming in to see if they qualify,” Robinson said. Customers are demanding to find out when they come in to buy, he said, and want to take advantage of every incentive out there to get the vehicle price down.
“I’m one of the guys out there that have been positive. People who didn’t believe they would get reimbursed didn’t do it. We’re taking the chance that we are going to get reimbursed,” he said.
Robinson said he thought the program had worked and gotten people out buying new cars.
“It has done what they wanted it to do, but it’s a double-edged sword; it comes with a price,” he said.
The downsides of the program at this point were a lack of inventory industry-wide and the significant outlay of operating funds tied up in the clunker rebates, Robinson said.
Robinson said dealers have to wait to get repaid on the credits they’re giving buyers and no one knows for sure when that money will come in.
“The problem is you’re out working capital,” Robinson said. “You’re out $90,000 until the government pays you back and nobody’s been paid yet.”
Robinson said on a typical $25,000 new vehicle, if he paid $24,000 to bring it onto the lot, he could sometimes have to make up more than $6,000 in a combination of existing dealer incentives and cash for clunker money.
“Every (sale) I’m out six to $7,000; you’ve got to be careful,” he said. “You can sell all of the cars you can get your hands on, but if it takes the government a long time to pay it back, you’re killing yourself in cash flow.”
Not all of the buyers coming to Vittengl are Cash for Clunkers seekers, he said.
Robinson said the new car business was moving along nicely at the moment at a dealership that sells mostly new trucks. “There’s a definite uptick in business right now,” he said.