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'Clunkers' give sales needed jolt
Automakers now struggling to meet demand for cars
Tuesday,  August 4, 2009 3:05 AM
THE COLUMBUS DISPATCH
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"Cash for Clunkers" is beginning to seem like the defibrillator that jolted the auto industry back to life.

In the short term, it has boosted sales and left some dealers with surprisingly small inventories. But whether the program's boost will drive the industry back to health is debatable.

Carmakers' own sales numbers for July show the program, now about a dozen days old, fueled a surge in new-car sales. It helped Ford's sales numbers return to positive territory for the first time in 19 months.

Overall new-car sales were down 12 percent in July, compared with the same month last year, but it was the smallest drop of 2009.

"This is definitely the spark that we needed," said Matt Bonanno, general manager of Jim Keim Ford on the West Side.

Given that most automakers' sales had been falling 30 percent or more in recent months, the July results were good news even if most contained minus signs: Ford sales in July were up 2.3 percent from a year ago, Chrysler's were down 9.4 percent, Toyota's fell 11 percent, and General Motors' sales slipped 19 percent.

Honda, which was riding high last summer with its fuel-efficient lineup, reported that sales fell 17 percent. This was the second month in a row that Honda was among the laggards, largely because its sales in 2009 were being compared with such strong numbers from a year ago.

Joining Ford among the gainers were three smaller companies: Subaru, up 34 percent; Hyundai, up 9 percent; and Volkswagen, up 1 percent. All had been outperforming the industry even before they got a boost from the "clunkers" discount.

Started on July 24, the government's Car Allowance Rebate System program -- commonly called Cash for Clunkers -- gives buyers up to $4,500 to trade in a gas-guzzler for a new vehicle that is more fuel efficient. Several automakers offered additional savings, topped by Chrysler's offer of its own $4,500 rebate, for a total discount of up to $9,000 on Chrysler, Dodge and Jeep brands.

The $1 billion in funding for the program had almost run out by Thursday. The U.S. House rushed to authorize an additional $2 billion on Friday, and the Senate will take up the issue this week.

Ohio's senators both indicated they'll vote for the additional funding. Sen. George V. Voinovich, a Republican, and Sen. Sherrod Brown, a Democrat, both issued statements of strong support for the program and additional infusion of cash.

Secretary of Transportation Ray LaHood has said his agency will honor all of the "clunkers" deals through the end of the day today, even if the Senate has not yet passed the bill. He estimated that 250,000 new cars had been sold using the discount.

One of the buyers, Greg Patton, 52, of Gahanna, was willing to drive two hours to get his vehicle.

"It was almost too good a deal to pass up," he said.

He shopped last weekend at Chrysler dealers in central Ohio and found they were sold out of the models that interested him. Finally, he found what he wanted at a dealership in Cadiz, 125 miles east near the West Virginia border.

He traded in his 1994 Cadillac El Dorado for a Jeep Patriot crossover. After all the discounts, he drove off the lot with a new vehicle for about $9,500 plus taxes and fees.

"I was nervous the whole time," Patton said. He said he expected something to go sour in the deal because it seemed unreal, but he drove off the lot without a problem.

The next question for the auto industry is whether the gains can be sustained.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., thinks the sales show a pent-up demand that will not go away. He draws a parallel with the auto discounting that happened after the 9/11 terrorist attack.

"That was the key factor that turned the economy around at that point," he said. "It indicates the power of the industry to have an impact on the economy."

He's not ready to declare the auto downturn over, but he is confident that the upward trend will continue.

At the same time, some in the industry worry that the promotion will come back to bite them.

"We're stealing business from the future," said Joe Harp, a manager at Roush Honda in Westerville. He looks at the discounting earlier this decade as a drag on the industry that contributed to lackluster sales afterward.

A more immediate concern for car dealers is that demand exceeds available inventory. Dealers are running low on the fuel-efficient models that meet the terms of the government incentive, such as the Ford Focus and Dodge Caliber.

"I am out of most of our inventory," said Eric Tincher, general manager at Performance Chrysler Jeep Dodge on the West Side. "It's probably the best program I've seen in a long time."

So now, after Chrysler and GM idled production for most of the summer, they can't build cars fast enough. That's good news for Chrysler workers in Toledo and GM workers in Lordstown.

In the northeastern Ohio city, 2,250 workers are expected to be back on the job by Wednesday at the plant, which makes the Chevy Cobalt and will add the lighter, fuel-efficient Cruze early next year.

"You just don't build these cars overnight," Tincher said.

At Chrysler, the company is working to meet customer demand for its gas-sipping models. Spokesman Max Gates declined to speculate on when new vehicles may arrive in showrooms.

"All I can say is we are in full production," he said.

One expert also thinks there's another backlash from the program and the demand for fuel-efficient cars that it has created.

"Here's the irony," said Jeremy Anwyl, CEO of car-buying Web site Edmunds .com. "As pricing on fuel-efficient cars increases because of this artificially created shortage, then consumers who can't participate are going to be influenced to buy less fuel-efficient cars" -- the opposite of the cash for clunkers goal.

Information from the Associated Press and MarketWatch was included in this story.

dgearino@dispatch.com


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