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Some dealers suffer post-‘Clunkers’ hangover

As Gene Butman Ford opened its doors Saturday, salesmen outnumbered the shoppers.
While most dealers are grateful for the boost "Cash for Clunkers" gave them, they're paying for it now with fewer customers.Carlos Osorio / AP
/ Source: The Associated Press

As Gene Butman Ford opened its doors Saturday, salesmen outnumbered the shoppers looking at a depleted stock of cars and trucks, and it didn't appear that many customers were ready to buy.

Like many dealers across the country, the dealership in Ypsilanti Township, Mich., west of Detroit, is suffering from a Cash for Clunkers hangover, and Sales Manager Paul Grahl isn't sure when it will end.

"We're getting some traffic, but my business is a long way from healthy," said the longtime salesman. "We suspect it's going to be 90 days before we get back to any kind of normalcy."

The clunkers program lured hundreds of thousands of people to dealers in July and August with government rebates of up to $4,500 to trade in older, inefficient vehicles for newer, more fuel-efficient ones.

While most dealers are grateful for the boost, they're paying for it now with fewer customers. The government rebates drew people into the market who otherwise would have kept driving their clunkers due to uncertainty over the sputtering economy. Those customers might have made their purchases later in the year.

"It was good while it lasted," said Phil Warren, sales manager at Toyota Direct in Columbus, Ohio. "Now we're a little bit concerned about what happens next. The program may have just taken a lot of people out of the market."

Making matters worse, many dealers depleted their stocks with clunker sales, and automakers have been slow to ramp up production to replenish the lots. Grahl says Ford has built the cars he ordered but mysteriously hasn't shipped them. So the selection isn't very good for people who do want to buy.

"We've noticed that," said Amy Whiting, who with her husband, Frank, was shopping this weekend at a Pontiac-Buick-GMC dealer near Butman Ford. "You drive in the lot and it's gone."

The Whitings, who had trouble finding a Toyota Matrix compact, instead bought a used Pontiac Vibe, a General Motors version of the Matrix built at a soon-to-be-shuttered California factory that's a joint venture between GM and Toyota.

Dealers across the country reported sparse selections on their lots as inventories shrunk to near record low levels. At the end of August, GM reported 379,000 cars and trucks in its supply, about half of what it had in August of last year. Ford Motor Co. had 243,000 cars and trucks, down from 461,000 a year ago.

David Kelleher, who owns two Chrysler dealerships in the Philadelphia area, said he sold out of many products.

Now, because of low inventory and September being a traditionally slow month, the sales pace has returned to where it was before the clunkers program began.

"We were already in a really mediocre year," Kelleher said. "We're just kind of back into that mode again."

Kelleher usually has 350 to 400 vehicles at each of his lots, but said the clunkers program reduced that to around 50. He, too, has ordered replacements and is awaiting their arrival.

"We're back into that let's-wait-and-see mode," he said. "People aren't 100 percent sure about the economy yet."

Some economists are predicting that clunkers and other stimulus programs will pull the economy out of a recession this quarter. Consumer confidence rose from a reading of 65.7 in August to 70.2 in early September as measured by the University of Michigan-Reuters survey.

Yet employment is still on the decline. Companies shed 216,000 jobs in August and unemployment rose to 9.7 percent, its highest level since 1983.

So in many ways, the Whitings, in their mid-20s and both secure in their jobs, represent a large chunk of buyers who remain in the market: They had to buy because their 1997 Plymouth Breeze sedan had so many things go wrong that it wasn't worth repairing.

"For us it wasn't a matter of confidence. It was more practicality," Frank Whiting said.

The clunkers program brought a drop in rebates and other sales incentives in August from every major automaker but Hyundai Motor Co., Nissan Motor Co. and Toyota Motor Corp. Chrysler had the steepest drop, from $4,604 to $3,405, according to the automotive Web site. But slow September sales could drive them up again.

Scott Kesel, owner of a Chrysler-Dodge-Jeep dealership in Canandaigua, N.Y., near Rochester, thinks the September sales drop is seasonal as vacations end, students return to school and people focus on new routines.

"That is always a difficult retail period for us. If you see numbers that suggest the market is down in September, it may be absolutely normal," he said, adding that he isn't worried about the rest of the year.

"I think there's more demand out there yet, and the right dealers and the right products will bring those customers out."

Kesel, like many dealers, still hasn't been paid for most of his clunker sales.

"Most dealers are in a cash-flow crunch because of the federal government not paying up on this," he said.

The government reported Friday that it has approved $1.22 billion in reimbursements, about 40 percent of what is due. The Transportation Department said it is on track to pay eligible dealers by Sept. 30. The rebates, which ended Aug. 24, led to more than 690,000 new car sales at a taxpayer cost of $2.88 billion.

As a result, U.S. sales of cars and light trucks rose to 1.3 million in August, a roughly 30 percent increase from July. But now that the clunkers program is over, industry analysts expect poor September sales, even lower than the July rate.

Even though customers are few now, dealers still are happy that Cash for Clunkers helped them in a difficult year with sales running at an annual rate of around 10 million. As recently as the first half of this decade, U.S. automakers sold around 17 million units per year.

"The CFC program definitely had an impact for a brief period of time, but it was like throwing a life jacket on a sinking boat," said Dan Mahan, desk manager of Riverside Auto Mall with Jeep, Dodge, Chrysler, Toyota, Honda and Nissan outlets in Marquette, Mich.

The clunker sales, though, will help the Upper Peninsula dealership network to keep going if times get even worse.

"Because the CFC program was there, we were able to squirrel away a nut for winter," Mahan said.