Assessing Cash4Clunkers

On Monday at 8PM, the Obama Administration will put [1] the Cash for Clunkers on the junk heap, along with the hundreds of thousands of clunkers traded in under the program.

In just a few weeks, the program has had the most visible success of any aspect of the Obama stimulus program. By Monday, C4C will have supported [1] some 700,000 new sales. JD Powers expects [2] August retail sales to reflect a year-on-year increase over last year. And manufacturers have recalled idled workers in the last few weeks to meet the increased demand.

But those are the top-line numbers. Moving forward, how do we assess C4C and on those terms, will it be a success?

American Jobs
The first question is, did the program support American jobs, both in the dealers and at the manufacturers? We know dealers had the sales to keep their sales people working; but given their cash-strapped positions, if the reimbursements from the Federal government don't come quickly, it will present new problems for dealers.

We know thousands of workers [3] were brought off lay-offs to respond to the increased demand.

But one question remains--and it is a question that will linger. Did the program help American manufacturing workers? Or did it help Japanese and Korean and Mexican manufacturing workers? Early reports [4] on new vehicles purchased under the program showed the Ford Focus as the most popular car under the program. Of the top ten, four were made in the US by American manufacturers, and three more (the Civic, Corolla, and Camry) are made at least partly in the US by transplant manufacturers, while the Prius, Elantra, and Fit are imported. As of last week, Corolla and Civic had taken over the top spots [5] on the list, and the CR-V and the Mexican-assembled Versa [6] had supplanted the US-made Cobalt and Caliber. While GM still comes close to matching Toyota for total cars sold under the program, obviously this program has benefited both American and foreign manufacturing workers.

Partly, though, that's still a reflection of American production costs. In the smaller segment of these cars--the Versa and the Fit--and with the Prius, no one is yet making a US-assembled car. The Ford Fiesta will be made in Mexico as will (further down the line) the Fiat 500. And Corolla production is likely to move entirely to Canada later this year if the Toyota/GM Nummi plant shuts down [7]. One thing C4C ought to demonstrate is that manufacturers are less likely to make these very efficient, lower-margin cars in the US given the higher costs for manufacturing in the US, starting with healthcare.

Environmental Efficiency
Then there's the environmental question: will the program noticeably improve fleet efficiency?

On this count, consumers ended up being smarter than Congress. While the requirements of the program were actually quite minimal, particularly for trucks, consumers have chosen small efficient cars at much greater rates than anticipated. The new cars purchase under the program are still 60% more efficient than the clunkers traded in. While that still amounts to a limited environmental benefit, that is better than planned.

One longer-term benefit of the program, however, might be a shift in consumer marketing and in the consumer's understanding of efficient vehicles. In particular, GM has used the opportunity to boast of its large number of efficient vehicles. For example, GM's new cross-over Equinox [8], which has best in segment mileage but is made in Canada, is one of the vehicles for which GM recently boosted production.

It will take some time to measure whether the government's support for people to buy more efficient cars will lead to a change in the US culture. But there are hints that C4C may have contributed to a change in that culture.

Bureaucratic Efficiency
Finally, we are going to hear a lot about bureaucratic issues with C4C--complaints from dealers that they are not getting their rebates quickly enough (see my comment earlier about the cash flow challenges facing dealers) and complaints that rebates are being rejected.

Secretary of Transportation Ray LaHood has announced expanded number of people processing dealer claims, but thus far only 30% of the claims have been paid.

Yet one aspect missing from this debate is a real awareness of manufacturers' own rebate programs and the reasons those rebates are commonly rejected. For the more complex (American) manufacturer programs, there is commonly a significant error rate. That stems from the complexity of the program, but more importantly, dealer management problems. Often, a rebate is rejected simply because a salesperson gave a rebate to a customer that didn't qualify, or gave a rebate without collecting all the required paperwork. We're seeing a lot of that in this case. And the big question, moving forward, will be how LaHood deals with rebates that are clearly out of compliance with the program, but which dealers are requesting rebates.