Car Showrooms Quiet After Clunkers Clamor Ends

As many suspected might happen, the number of customers visiting car showrooms and dealerships has dropped significantly since the Cash for Clunkers program has ended. According to a new Boston.com article, inventory at dealerships is accumulating again, and they are being forced to offer new incentives to draw customers.

Manager Adam Silverleib said business was “pretty intense’’ as a result of the federal stimulus program, with the dealership hustling to accommodate customers and handle the piles of paperwork required for them to receive reimbursement on vouchers. “Now we’re kind of back to where we were in the spring,’’ he said.

In an attempt to draw customers back to showrooms, some dealers are offering new incentives, albeit none as enticing as a $4,500 for a rusting junker. Silko, for example, is promoting 2.9 percent financing on new Accords, along with other deals on its website.

Nationwide, customers snatched up 700,000 new cars, most of them foreign-made, and the government ended up paying out nearly $3 billion toward the purchases. But from the start, analysts predicted that Cash for Clunkers would not boost sales for the year. September’s sales swoon seems to be making their case. Car sales are usually slow after Labor Day, but because of the recession consumers this year are especially reluctant to say yes to major purchases. To make matters worse for dealers, most are still waiting for voucher reimbursements.

“It was probably, in the end, a complete waste of taxpayer money,’’ said John Wolkonowicz, a senior auto analyst at IHS Global Insight, Lexington forecasting firm. “The dealers, who were supposed to be the primary beneficiaries, many were forced into cash flow problems because the government didn’t pay them in a timely fashion.’’

A Rush to Cash in on "Cash for Clunkers"

As we all know, the massively popular Cash for Clunkers program sponsored by the Federal government has swamped U.S. car dealerships. Unfortunately though, the program is expected to end at 8 PM tonight, as a busy weekend for auto dealers is expected to use up the remaining rebates. So if you are hoping to take advantage of the program then you better hurry up!

CBS News published the following article about how busy dealerships were this past weekend after Friday’s announcement that over 2/3 of the available rebates had been requested.

"I've never seen the showroom - in the 27 years I've been here - this busy," said Brian Benstock, general manager of the dealership, Paragon Honda.

The story is the same all over. At a Toyota dealer in Maryland, salesmen are hip-deep in clunker deals. And the back lot of Christian Gomes's Ford store on Long Island it’s the clunkers themselves that run 60 deep.

Gomes said he sold his entire inventory. The government's Cash for Clunkers program invigorated comatose car showrooms. The biggest winners were Toyota, raking up 19 percent of all the sales, followed by GM with 18 percent, Ford with 15 percent, and Honda with 13 percent.

Richard and Stephanie Miller didn't plan on dumping their clunker. But their 16-year-old Ford Explorer was wheezing after 153,000 miles.

"She gave us a lot of good years, but she's had it," Stephanie Miller said.

So the millers went shopping today. An hour and a half later, awarded with $3,500 in clunker cash from the government and a $1,500 rebate from ford, they were they owners of a bright red 2010 Ford Fusion.

"I voted against Obama but the man has a lot of imagination," Richard Miller said. Stephanie Miller added that she was excited about the gas mileage of the new car.

What If Cash for Clunkers Was a Tax Credit?

While auto dealerships and consumers continue to enjoy the benefits of the Cash for Clunker’s program, Gerald Prante of The Tax Foundation Blog has put together a new post explaining what would happen if the program were a federal tax credit. Check out the text of his post below.

Critics of the "Cash for Clunkers" program are out in full force, claiming that its problems are evidence that government is inefficient and that it is further proof that government shouldn't get involved in something as important as health care.

But suppose that instead of the government providing $4,500 in outlays per qualifying car in a program that is being administered by the Department of Transportation, the Congress instituted a $4,500 refundable income tax credit that met the exact same qualifying criteria as the current program, yet was administered by the IRS. Would the tax credit be good fiscal policy merely because it's mostly classified as a tax cut as opposed to an "outlay?"

The economic difference between these two scenarios is zero (except for possibly differences in administrative costs). Both policies would be financed by deficits, leading to either lower spending in the future or higher taxes in the future.

Despite this fact, it's likely that many of these same critics of the $4,500 cash for clunker outlay who are citing its problems as proof government doesn't work would have supported such a $4,500 cash for clunker tax credit merely because it would have been classified as a "tax cut" instead of an "outlay."

For these people, tax policy is all about semantics instead of understanding the economic effects of differing fiscal policies.

Toyota to End Calif. Joint Venture with GM

Just last week I posted a blog entry discussing how California lawmakers were struggling to find a way to save the State’s last remaining auto plant. However, earlier today I came across this Associated Press article published by the SacBee.com announcing that Toyota Motor Corporation has indeed decided to liquidate its joint venture with General Motors. For those of you who do not recall, the plant assembled vehicles for both Toyota and GM. However, just because Toyota is pulling out does not mean the factory will close, but it does not give GM a short time frame to decide the fate of the factory and the 6,400 California taxpayers it employs. Check out a clip from the AP story below, or check out the full article below.

Toyota Motor Corp. has decided to liquidate its stake in a California manufacturing plant that it jointly operated with General Motors, a Japanese news agency reported Thursday.

The Japanese carmaker will begin negotiating with the "Old GM" starting next week, Kyodo News reported, citing unnamed company officials.

Toyota spokesman Mike Goss would not confirm that the Japanese automaker had made a final decision on the fate of Fremont, Calif.-based New United Motor Manufacturing Inc., also known as NUMMI. Goss said Toyota will begin negotiations with the GM officials about the plant and added that the company is conducting an "extensive review" of its production needs.

A GM spokeswoman was not immediately available to comment.

Nummi's fate was thrown into question last month when GM announced it was withdrawing from the 50-50 joint venture. GM emerged from bankruptcy protection shortly after the announcement and the company's stake in NUMMI is now part of Motors Liquidation Co. - also known as Old GM - where it will be liquidated under court supervision.

The NUMMI plant, established in 1984, employs 4,600 workers and makes the Pontiac Vibe station wagon for GM, and the Corolla compact car and Tacoma pickup truck for Toyota.

States Feel The Pain On Auto Dealer Row

From CNNMoney.com:

Loss of dealerships, coupled with declining car sales, is hammering state and local budgets already thinned by the recession.

The downfall of the American auto industry is wreaking havoc on state and local budgets from coast to coast.

The decline in auto dealerships, coupled with the drop in car sales, is costing states and municipalities millions of dollars in lost sales taxes, not to mention lost income and property taxes and other fees.

Though exact numbers aren't available, car purchases account for about 12% to 15% of sales tax revenues in many states, estimates the Center on Budget and Policy Priorities. And sales taxes usually account for about one-third of a state's revenue.

As the recession deepens, state tax revenues have fallen off a cliff. This has opened up yawning gaps, forcing officials to scramble anew to balance their budgets.

The drop in sales taxes are the worst since World War II, and the plunge in car sales are a major reason for it, said Donald Boyd, senior fellow at the Nelson A. Rockefeller Institute of Government, a public policy group.

"The declines have been devastating," he said. "It comes at a time when the states can't afford it."

Take California, which has seen new car sales plunge 43% in the first quarter and 186 dealerships disappear since the start of 2008. The Golden State, which is struggling to close a $21.3 billion budget gap, is slated to lose 32 Chrysler dealerships and possibly 100 GM dealerships as part of the automakers' restructuring.

New car sales are the single largest component of the sales tax base, accounting for 10.6% in 2006, the latest year available, according to the state's Department of Finance. Municipalities also depend on the sales taxes, as well as other revenues such as property tax, to fund their operations.

"Many communities are having to let go firefighters and police because the sales tax revenues are down," said Peter Welch, president of the California New Car Dealers Association.

Fewer sales, deeper budget cuts

Indiana, which is wrestling with a $1 billion budget gap, saw auto sales taxes fall by 23% in the second quarter, said Chris Ruhl, the state's budget director. Car purchases are the third largest source of sales tax revenue, until recently accounting for about $550 million a year.

The state is now tightening its belt, Ruhl said, to deal with the lower revenues. On Monday evening, Gov. Mitch Daniels recommended cutting spending by 2.5% across-the-board and tapping into the state's $1 billion-plus rainy day fund to balance its budget.

New Jersey, meanwhile, is also feeling the effects of the auto industry meltdown. The Garden State has lost 170 dealerships since the start of 2007 and could lose 90 more in the cutbacks by Chrysler and General Motors (GMGMQ), which filed for bankruptcy on Monday. New car sales are down 33% for the first four months of the year.

This plunge has a drastic effect on state revenues, said James Appleton, president of the New Jersey Coalition of Automotive Retailers. He estimates that the state loses $10 million in revenue for every 1% drop in car sales. Incomes taxes also suffer when dealers close since each employs about 65 people.

State officials are now scrambling to close a $4.4 billion budget gap, exacerbated by an unprecedented decline in sales taxes.

"Until these markets come back, the state will continue to suffer," Appleton said.