Jumpstart Automotive Group

By now, we’ve all heard the good news about Cash for Clunkers. Dealers across the country have indicated that traffic is up and that the program is not only working to sell more fuel-efficient new cars but that it’s bringing other new and used car shoppers into the market. Politicians are busy congratulating themselves for saving the auto industry. They’re so happy with the way they spent the first billion dollars that they’ve extended the program and funded it with another $2,000,000,000. Is it a good program for the industry? Well, the jury’s still out.

Yesterday, AdAge featured some of our recent data showcasing some nuances that many in the industry seem to be missing when it comes to the much hyped program. Notably, we found that our 12 million plus in-market car shopping audience was shopping for fuel-hungry trucks more than ever the week the incentive program was announced. This raises a big question mark for marketers and policy-makers on whether consumers “get” the program’s goals.

While we can’t ignore that the short-term results of Cash for Clunkers have been encouraging, marketers must carefully study the facts and the long-term impact of the program without simply getting lost in a sea of short-term results. Yes, July was the best sales month of the year with 998,062 new vehicle sales reported. This was up 16% from June and is the smallest year over year decline in 2009. Yes, cars took a larger share of the market and the top ten models purchased were fuel-efficient vehicles. Ford Escape is the only CUV/SUV/Truck of the top ten models purchased. Yes, all of the top ten trade-ins are models classified as trucks.

Yoshimi Inabe, Toyota’s new North American President said “I can feel the pulse for market recovery is strong.” I’m sorry, but, I’m not so sure. $3,000,000,000 should support the sale of approximately 600,000 new vehicles. If 50% of these are incremental, we could break the 10 million sales thresh-hold this year. If they are not incremental but are pull-ahead sales by consumers taking advantage of extraordinary incentive levels, this will prove to be highly damaging to the industry. My fear is that we have simply increased the level of our incentive addiction. This is not healthy for the industry. It is not healthy for future used car values. It is not healthy for dealers who are becoming more and more dependent on selling the size of the discount rather than selling their brands, products, or level of service. What is the message and selling proposition after $9,000 discounts are gone?

I believe that the underlying drivers of retail auto demand continue to be unemployment, housing stability, and consumer confidence. The unemployment news is mixed but the consensus is that the official rate will grow beyond 10%. Housing seems to be stabilizing but at much lower valuations. The Consumer Confidence Index retreated again in July, declining to 45.3. This is the environment we are living in. It’s difficult to see more than 10 million sales until these indicators are moving in a positive, sustainable direction.

The reality of Cash for Clunkers is that it generated great short-term results. When it’s over, we’re likely to wake up with a big hangover. Unfortunately, this is often the case as short-term actions frequently have unintended long-term consequences. For a real turnaround, for a sustainable change in the industry, we need to see more imaginative thinking that goes beyond short-term incentives.

Consumers are clearly ready for some good news. The American love affair with cars is far from over. Let’s be smart, look beyond next month’s sales results, and do the things necessary to re-build this industry.