Analysts Weigh-In on Cash for Clunkers and Other Incentives for Car Buyers

By Jeffrey Bellant April 13, 2020
Cash for Clunkers the 2009 program may come back in some form due to Covid-19 Cash for Clunkers the 2009 program may come back in some form due to Covid-19

Simulcast sales have become the norm and talk of a new “Cash for Clunkers” program is raising concerns from the National Auto Auction Association.

The NAAA  reported a huge turnout at its April 13 weekly conference call with industry leaders.

“I think today’s call was the best represented call we’ve had so far,” said NAAA CEO Frank Hackett. “Everybody in the industry is interested in when we’re going to come out of this.”

In terms of wholesale, online is the story

“Just about everybody is doing some simulcast,” Hackett said. “ADESA’s back up, Manheim’s certainly doing it and the independents are all doing some form of simulcast or online sales.”

NAAA also talked with industry analyst Glenn Mercer, who offered his insights.

One topic that came up was “Cash for Clunkers,” the 2009 program that was intended to incentivize consumers to trade in older cars for newer, more fuel-efficient vehicles. The trade-ins were scrapped, taking nearly 700,000 used vehicles off the road.

Ford Motor Co. has reportedly suggested a new version of it.

“That’s something we’ve been addressing as an industry,” Hackett said. “We’ve been in talks with NADA (National Automobile Dealers Association). We just want to make sure they don’t crush the cars like they did back in 2009, because that took so many good cars off the road.

“It hurt everybody. It defeated the purpose.”

In his report, Mercer cites analysists who think other incentives – outside of a  Cash for Clunkers plan –  would be better.

“Most analysts, however, see OEM discounts and subvention as more likely to have a major effect,” Mercer stated.

Hackett said there is an expectation that people will be  more cautious about using Uber, a cab or public transportation.

“There will be a high-demand for pre-owned cars again,” Hackett said. “Nobody’s going to want to get in a car that 30 people have sneezed in over the last three hours.”

Mercer agreed, expecting “a significant blow to what is called ‘the sharing economy’ as Americans come to question the safety of sharing a vacation rental, an Uber or a WeWork desk.”

Mercer said despite the pandemic and current business stoppage in the economy, there is some good news for new car sales.

“Almost all underlying economic fundamentals for new sales remain positive, implying that once we get past the virus, new sales should be solid,” Mercer stated, “This was the case with the 2008-2009 recession (think of the overhang of busted mortgages) and we still ran off a decade of rising sales.”

Mercer added that “used car sales should hold up better, as they are slightly counter-cyclical to new sales, as bad times flush new buyers back to cheaper used cars.”

He said continued low fuel prices may also encourage consumers.

New-car dealers still face major challenges, based on a survey Mercer cited.

“As for dealers, a recent survey of 300 or so (new-car, franchised) reveals the following: massive layoffs; most service facilities open; many sales facilities open; massive shift to online (including pickup and drop-off); sales down much more than service (60-90 percent versus 30-50 percent); banks and captives providing generous financial relief (e.g. extension of terms),” Mercer stated.

“In this survey dealers revealed the robustness of their business model once again: the average store said it could run at these sales and service levels for 3-4 months before closing.

“Excessive days’ supply will be eventually relieved somewhat by factory closings.”

In terms of new-car sales in 2020, Mercer cited more than a half-dozen forecasts that ranged from 15.4 million to 13. 2 million.

Instead of a quick rebound – a V-shaped recovery – Mercer expects a less sharp, U-shaped recovery.

Geographically, he expects the Midwest and South to bounce back more quickly.

The Midwest, for example, has more manufacturing jobs to lose, an economy that has shifted more to healthcare, and relatively low virus exposure, so it may do better, Mercer reported.

The effect of COVID-19 on advanced driver-assistance programs (ADAS), autonomous vehicles and EVs will be mixed, Mercer stated.

“Most analysts agree that while ADAS penetration will keep growing, OEM cashflow concerns will delay the rollout of full (L4 or L5) autonomous vehicles,” he stated. “The low price of gas may also delay growth in EV market share, as will the higher price points of EVs.

“It is also unclear whether states will maintain high levels of EV subsidies, given the stress on their budgets. As before, the OEMs will have the supply of EVs, it is unclear if customers will have the demand.”

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Last modified on Wednesday, 15 April 2020 21:09

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