Bridging The Gap
Dealer Insight from Edmunds.com

Volume I   Issue No. III July 2009


Cash for Clunkers: The Perfect Storm?

Will You Corral the Energy or Navigate Around It?

People have been talking about pent-up, new car demand for months. Our first newsletter spoke specifically to the squeeze in the used car market and how used car inventories could not sustain filling the new car void forever.

June numbers are in, and we may be at the bottom of the curve looking up. June, albeit still in the negative, and known for retreating consumer confidence year over year, was probably the strongest month of the year for new car sales. As expected, new car sales are teed up. With Ford leading the pack, GM and Chrysler emerging from bankruptcy, the signs of an upswing are there.

What can trigger showroom traffic to really get sales accelerated?

Enter Uncle Sam

Enter Uncle Sam

Cash for Clunkers - TARP - Stimulus

In this issue, we'll explore the latest programs and determine how to use these programs to jumpstart sales.

Cash for Clunkers

It seemed after the bill's appropriation was knocked down from $4 Billion to $1 Billion that when all was said and done, more would be said than done. Most automotive pundits, including some at Edmunds.com, believe the bill will only result in a modest boost in sales. As far as boosting sales directly through the vouchers, I agree. However, in total sales, I couldn't DISAGREE more! I say, get them in and get them done!

Although the program may account for only about 200,000 vouchers, if implemented properly, the hype behind the program and consumer interest can be leveraged into much more in terms of showroom traffic and total sales. The program ends November 1, 2009 or after $1 Billion in funding is expended, whichever comes first. To capitalize on this opportunity, it's imperative to quickly understand program details in relation to YOUR operation.

First things first, the program has not been implemented yet! There is a lot of information being distributed-online advice, microsites, ad strategies and much more. Some dealers have begun campaigns which tout them as "Participating Dealers." A word of caution, the NHTSA says dealers risk being fined up to $15,000 for a "violation" or "fraud." In my opinion, and I've chatted with counsel from an association who concurred, writing Cash for Clunkers "deals" ahead of registration is a dangerous formula.

Hyundai, continuing on the path of being proactive in a rough market, announced they will be advancing monies to US dealers to fund the cash for deals qualifying for vouchers based on the current guidelines. Again, kudos for being so aggressive, but be careful.

That being said, look at what we do know.

The Trade:

  • $3500 or $4500 voucher replaces any trade-in value
  • Vehicle must be crushed
  • 18 MPG or less
  • Drivable condition, current registration/insurance for past year
  • 1984 model year or newer passenger vehicles
  • Medium duty work trucks 2001 model year or older

We've compiled a comprehensive list of eligible trades at Cash For Clunkers Elegible Vehicles

The Sale Unit:

  • Purchase, or 5-year lease
  • $45,000 maximum MSRP
  • New vehicles only
  • Passenger car, truck, van
  • Medium duty truck - limited availability
  • Only one voucher per person, per vehicle

Comprehensive List of Eligible Trades

MPG requirements are based on EPA's combined city/highway rating, shown on the window sticker and available at www.FuelEconomy.gov

Confused? Have questions? So does everyone else, and they're looking for answers!

The administrator of the plan, the NHTSA, says for answers "contact your local dealer." Phones are already ringing off the hook at dealers that are being proactive, and there has been activity on Edmunds.com from consumers searching for program details. The key is to be prepared for the NON-qualifying deals and preparing to make sales THERE.

TARP - Auto Credit

In meeting with dealers and speaking at seminars, I have to admit to some surprise, that with all the issues in the automotive world, overwhelmingly, dealers feel the number one obstacle to sales is the credit environment.

Banks have made it hard for people to get loans in general. Surveys report tighter standards, particularly for both credit-card loans and auto loans in 2009. One survey found that banks expect credit quality to continue to deteriorate over the year as the economy and job market continues to flounder.

The hard numbers are in. Nonrevolving credit, including automobile and mobile-home loans, dropped in May by 0.3%, or $367 million, to $1.592 trillion. Nonrevolving credit in April decreased 5.9%, or $7.8 billion. Early indications are that June numbers will look similarly bad.

Regardless of anyone's opinion on the wider banking discussions, TARP, securitization, loan modifications and alike, the reality is that the credit freeze is only starting to slowly thaw. The credit market, automotive in particular, remains frozen for what seems to be about 40-50% of those who desire new cars.

Stimulus - Floor Plans

Dealerships are also wrestling with banks dropping and/or changing floor-plan criteria. As part of the Stimulus plan, the U.S. Small Business Administration pilot program is helping mid-sized dealers by guaranteeing floor-plan loans. The guarantees can apply to 75% of loan amounts ranging from $500,000 to $2 million. The maximum repayment term is five years.

"Because of the severe decrease of dealer floor-plan financing over the last several months, each of these loans most likely will keep open a viable business that would have otherwise closed," the SBA commented.

The program ends September 30, 2010. However, the administration may extend the initiative after the pilot ends. Qualifying dealerships must have had $29 million or less in annual gross revenue averaged over the last three years. An alternative test is having a net worth below $8.5 million and average after-tax net income of less than $3 million over the last two completed fiscal years.

If you need to, look into the SBA plan.

Stimulus - State Hybrid Tax Credits

A part of the stimulus package that has been relatively untapped for automotive sales use is the $800 million allocated for Alternative Fuel Vehicle (AFV) and Hybrid Electric Vehicle (HEV) tax credits. These credits can and have been used by states for state tax credits similar to the federal tax credits on alternative fuel or hybrid vehicles. Check with your state for more information.

Assurance Programs

Although the initial assurance programs from the domestics are over, they may be reconstituted in the future. These types of programs, particularly for those being instituted by dealer groups, may be part of the landscape going forward.

Hyundai's Assurance Plus program allows customers to return their vehicles and walk away from a loan or lease, without negatively affecting their credit score. Owners are eligible if they lose a job through no fault of their own, become disabled, lose their driver's license due to a medical injury, transfer to a job overseas or are self-employed and file for bankruptcy. They must have made at least two payments on time and be up-to-date on their payments at the time of job loss. There will be no further cost to the customer as long as the vehicle has not depreciated more than $7,500.

Hyundai will cover up to three months of a customer's car payments if they don't want to give up their car, regardless of the cost. The program is available to buyers of a new Hyundai this year.

Ford offered to make car payments of up to $700 a month for 12 months if a new customer lost their job. The "Advantage Plan" was available on cars purchased between March 31 and June 1. In addition to being the primary owner of the vehicle, the customer had to be unemployed for at least 30 consecutive days and have been employed for 90 consecutive days prior to losing their job.

General Motors' "Total Confidence" plan also ended June 1st, covering payments up to $500 a month for nine months in case of job loss. The customer had to be employed for 90 days from the date of purchase. If the customer lost their job during the following 21 months, they were eligible for the payment program.

I've seen ads for dealership programs, yet have not seen the details. I have looked at the AutoNation program. The AutoNation Payment Protection program, covering 232 dealerships nationwide, was offered at no charge for purchases and leases of new and used. To qualify, a person must have made at least three monthly payments, lost their job involuntarily and applied for state unemployment. If a person still could not make the payments after the six month grace period, the dealer would buy the car back at its market value. The customer would have been responsible for any negative equity.

Resources

  1. Cash for Clunkers Stimulus Bill

    Curious about the Cash for Clunkers Bill that passed Congress? We take a closer look at the program in our Cash for Clunkers Stimulus Bill page.
    Read More

  2. Cash for Clunkers Calculator

    Does the Cash for Clunkers program make financial sense for you? Use our Cash for Clunkers Calculator to find out.
    Read More

  3. Eligible Vehicles List

    Want to find out if your vehicle is eligible for the Cash for Clunkers program? Take a look at our Eligible Vehicle List to find out if you qualify.
    Read More

  4. Cash for Clunkers FAQ

    What are the restrictions and requirements of the program? We have spelled out the answers in our Cash for Clunkers FAQ section.
    Read More

  5. Good Purchase Candidates

    Wondering what type of vehicle can replace your clunker? Check out our list of Eligible New Cars to help you decide.
    Read More

What Can You Do? Take Action!

Prepare the dealership to welcome customers. Differentiate your dealership with some curb appeal that speaks to these federal programs. Make it New Year's Eve every day during the program.

I disagree with the pundits. I really do think that car dealers can make much more of this than is being forecasted. Call upon the best of your ideas, experience, and knowledge and use this unique point in automotive marketing to jumpstart you dealership.

Edmunds is scheduling webinars and face-to-face seminars for associations and dealer groups as part of our Dealer Outreach program. There is no charge for participation in these Edmunds programs. Please contact me directly with any questions.

In our next issue, Part 2 of our Cash for Clunkers series, we will be focusing on implementation and marketing strategies to help you maximize your results. Stay tuned!

 

Good Selling!

John Giamalvo

John Giamalvo, Director, Strategic Marketing
DealerInsight@edmunds.com


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