Driving Forward: After Cash for Clunkers, auto dealers restock

Cash for Clunkers - aka the federal Car Allowance Rebate System - appears to have done what it set out to do: Get more folks in new vehicles at a time when automakers were gasping.

The program aimed to replace older vehicles with fuel-efficient new models, and nearly 700,000 new cars were sold nationwide as Americans took advantage of the $3 billion federal stimulus program that ran July 27-Aug. 24.

Cash for Clunkers provided credits of $3,500 or $4,500, depending on what kind of new vehicle was purchased, and nearly $61 million was pumped into Missouri's economy, according to the U.S. Department of Transportation.

Under that program, the trade-ins, or clunkers, had to be destroyed and could not be resold. Nearly 700,000 used cars were taken out of the marketplace as a result.

Now that the program is over, Springfield auto dealers are left to their own devices on how to move vehicles - new or used - off their lots.

Challenging conditions

Research for Springfield Business Journal's 2009 list of area new-car dealers shows that new car sales dropped between 2007 and 2008 at each of the 11 companies that responded to requests for information. (See the full listing on page 14).

Those dealerships sold a combined total of 8,876 new vehicles in 2008, down 14 percent from the 10,338 sold in 2007. Several dealers contacted for the listing declined to disclose their sales numbers.

Local auto executives agree that customers are more hesitant to part with their money these days and are demanding the best value they can find. But while credit remains tight and buyers cautious, cars are still moving, they said.

Nationally, new car sales dropped 18.5 percent between 2007 and 2008, according to data from the Automotive Aftermarket Industry Association. Comparatively, new car sales dropped just 5.9 percent between 1999 and 2007, the national association said.

Revenue potential

Local dealers see opportunities for sales, even without a national rebate program in place and despite the fact that Missouri unemployment is at 9.5 percent, according to the September figures from the state Department of Economic Development.

"That still means 90 percent-plus are working, so it comes down to ... confidence," said Tim McKee, sales manager for Friendly Ford, 3241 S. Glenstone Ave.

And then there's need.

If a transmission blows or a family grows, vehicle needs can change.

"If you have three kids, you can't get by with a four-passenger car," said George Thompson, co-owner of Thompson Buick-Pontiac-GMC-Cadillac-Saab, 1555 E. Independence St.

Getting someone in a new or used vehicle in this economic climate essentially boils down to providing three things, dealers said: product quality, competitive pricing and superior customer service.

"You have to understand they can buy a car or truck from anybody," Thompson said.

To gain an advantage, Thompson said his dealership, which declined to provide sales figures for the listing, keeps prices in line with those of its competitors within a 250-mile radius of Springfield, and staff members work to exceed customer expectations.

For Friendly Ford, product quality is key, McKee said, adding that he'll match the quality of his vehicles against anything in the market.

"You can get the clowns and balloons, dancing elephants, anything you want, but it comes down to the product," he said.

Friendly Ford sold about 125 vehicles during the Cash for Clunkers promotion, McKee said, noting that sales were so brisk that vehicles were being sold straight off the truck.

When the promotion was over, all that remained on Friendly Ford's lot were eight to 10 eligible vehicles.

"I should have taken a picture. I've never seen the lot like that," McKee said. "It looked like we were out of business."

These days, Friendly Ford is focused on rebuilding its inventory, and McKee is concentrating that effort on certified pre-owned vehicles in anticipation of where he expects demand will be.

"I've got about half the new (car) inventory (as before) because I don't think I need it right now," McKee said.

Restocking used inventory

Even dealerships that don't offer new vehicles - and thus weren't affected by Cash for Clunkers - are facing restocking challenges as demand for used vehicles heats up.

In an Aug. 5 report titled, "5 Downsides to Cash for Clunkers," U.S. News & World Report Chief Business Correspondent Rick Newman cautioned that the number of clunkers traded in represented about 5 percent of the used-car market, causing enough of a contraction to potentially bring significant price hikes for used vehicles.

"Probably (one) of the biggest challenges facing us right now is what we're paying for our inventory," said Greg Highley, general sales manager at Premier Auto Outlet in Rogersville, which specializes used heavy-duty trucks and sport-utility vehicles.

"It seems like, a heavy-duty truck, you can have as many as 50 or 60 people bidding, which drives prices up," he said of acquiring inventory at auto auctions.

"It's just the availability of used trucks on the market. Usually, if they're not selling the newer trucks, they're not getting a trade-in," Highley added.

In August, Premier launched a used-vehicle lease program to help bolster revenues. For terms similar to leasing a new car - 10 percent down, first month's payment and a security deposit - customers can lease a used car for a specified term, usually 36 months. At the end of that time, they can decide whether to buy the vehicle or lease another.

"It's really taken off," Highley said.

Premier has a 17-bay service center and detail and rental department, and Highley said demand for fleet service is rising as the dealership's customers focus on taking better care of the cars they have.

"They're all trying to make them last a little longer. That's good on the service side, but not good on the sales side," he said.

Thompson, whose family business has been in operation since 1919, adopts a somewhat philosophical look at the current economic situation.

"We started selling cars in 1929. Truthfully, we've in those times seen some bad times. But we weathered the Depression," he said.