CASH FOR CLUNKERS: Used Vehicles Also See a Rise in Demand

The “Cash for Clunkers” program designed by the government to stimulate new-car purchases is also boosting sales of used vehicles — even though they don’t qualify for the federal subsidies.

“We just didn’t see this coming,” said Don Metzner, who sells Chrysler, Jeep and Nissan brands at his Armory Automotive dealerships in Albany, N.Y. “We sold more than 80 used cars in July when we usually sell 60, and we expect to sell more than 100 used cars in August.”

The cash-for-clunkers program offers as much as $4,500 to consumers who trade in old cars or trucks and drive off in new, more fuel-efficient vehicles. The $1 billion Congress approved for the program was used up after just one week, and auto makers reported a significant jump in new-vehicle sales in July.

Many in the industry had expected that government-financed deals on new cars would dent demand for used vehicles, but dealers offering both new and used autos say the opposite has happened. The steady demand is helping keep prices firm, a boon to dealers and auto makers that have been struggling in recent months.

“Cash-for-clunkers would normally be depressing on used vehicles; however, we are not seeing that yet,” said Tom Webb, an economist for Manheim Consulting, which produces a used-car-price index. “Prices have been increasing, and we expect to see that again in August.”

Auto dealers say many consumers who go into a showroom and find that their current vehicle doesn’t qualify for the program decide to go ahead with a purchase anyway, often choosing used vehicles.

Mr. Metzner saw that last week. A customer came in with a 1995 Buick looking for a clunker deal, but didn’t qualify because he had missed an insurance payment, Mr. Metzner recalled in a telephone interview. Instead of keeping his Buick, the customer got a 2007 Jeep Compass with 30,000 miles on it, Mr. Metzner said.

“On May 1, a 2007 domestic pickup truck was worth $14,127; on Aug. 1 it was worth $14,710,” said Ricky Beggs, vice president and managing editor of Black Book, which tracks vehicle values. “Last year, wholesale auctions couldn’t get rid of vehicles. Now they can’t get enough.”

One factor drawing consumers to used vehicles is the tight supply of new vehicles. General Motors Co., Chrysler Group LLC and Ford Motor Co. all say their inventory levels are at historic lows.

“Prices on used cars are getting too close to new-car prices,” said John Markovski, who sells used cars at Fairlane Ford in Dearborn, Mich. “You also have people who are used to paying $300 to $400 a month and driving a high-end vehicle like an Explorer. They can’t do that anymore, so there’s more demand for used vehicles,” he said.

(Source: The Wall Street Journal, 08/04/09)

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