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Cash For Clunkers Runs Out Of Cash
The one billion dollars allocated to President Obama’s ‘Cash for Clunkers’ scheme has already been exhausted just a few weeks after its introduction.
Officially called the Car Allowance Rabate System, or CARS, the Obama initiative is designed to help both the US economy and the environment by offering generous trade-ins for old gas guzzlers in exchange for new fuel efficient cars and trucks. Owners receive federal subsidies of up to US$4500 for their old vehicles.
The uptake of this scheme has taken bureaucracy by surprise, so the House Of Representatives has rushed through a bill to allocate a further two billion dollars to the scheme, which now awaits imminent Senate approval.
House Majority Leader Steny Hoyer said the money for the programme would come from funds previously approved as part of the economic stimulus bill.
US car dealers at last have broad smiles on their faces as buyers are returning to the new car lots after a series of tumultous shocks rocked the US car industry, culminating in General Motors and Chrysler filing for Chapter 11 Bankruptcy.
The CARS initiative certainly seems to be working as the Ford Motor Company has just reported its very first year on year monthly sales increase in July in the US, which they attributed solely to the CARS programme.
Increased sales were also reported by Hyundai and Suburu, but whilst Chrysler and GM also noted an uplift, they did not match sales from July ’08.
US results mirrored those experienced by Germany, who introduced a similar scheme at the beginning of the year which boosted sales by up to 20 per cent and prompted Obama to act in the US.
In Australia the motor industry sales have been boosted by a different initiative in the form of tax incentives.
Extra tax rebates of 30 percent for big busines (which expired on June 30) and small business (which continues to Dec 31st) has put fresh impetus into vehicle sales for some manufacturers in the last three months.
Gloomy Outlook For Holden After Huge Losses
It just ain’t getting any better at cash-strapped Holden.
After losing an export order for Pontiac vehicles earlier in the year and putting their Elizabeth, SA workers on a one week on, one week off roster, a form of job sharing, Holden have announced an annual loss of some $70mil. for the ’08/’09 financial year, with a drop of $300mil. in total revenues.
Whilst not as severe as Ford Australia, who recorded a stunning $274mil. loss for ’08/’09 it still raises further questions about Holden’s long term prospects.
Couple the local problems with its parent’s Chapter 11 bankruptcy, it needs an eternal optimist clad in rose coloured glasses to forecast a rosey future.
Perhaps the biggest question to ask is whether they can continue with their planned introduction of the new Cruze small car onto local production lines.
The recently announced and highly lauded small car is currently sourced from Korea, but plans are afoot to gear up for local production during 2010.
This will require a great deal of capital investment, and that will be difficult to get without either Government or Head Office assistance
Government claims dubious credit for record sales
The good news is that June vehicle sales reached a record high, with a 36.3 percent increase on May sales, and the third biggest sales month in the history of Australian auto sales.
Industry Minister Kim Carr ( what an appropriate surname) stated that the Australian car market was performing better than those in North America, Europe and Japan, and claimed that this was due to ‘the carefully targeted investment packages’.
That may well be true, and in fact, our own experience at Private Fleet in June reflected the overall sales patterns, but with one proviso.
There was a huge stock shortage problem in the market place. It was a real headache sourcing a car to the precise specifications that a customer wanted.
And why was this?
Simply put, the trade had reduced their forward orders in anticipation of a sales downturn.
The 50 percent small business incentive announced in the May budget took the trade by surprise, and they had no chance to gear up stock levels.
If the Federal Government had simply given advance warning to the trade, allowing them to increase stock levels to meet the expected increase in demand, then we could very likely be reporting an outright record month.
The 30 percent tax incentive for big business has now expired, so what can we now predict?
First off, we can see that the trade will be increasing their forward ordering in the light of the June demand. There will be some sustainable demand from small business as their 50 percent bonus runs through to the end of the year.
But we now think that the build up in stock levels may well exceed the softening demand from the corporate sector ( their 30 percent tax bonus having now expired) over the next few months.
Coupled with the weak overseas markets and the manufacturers’ keenness to get stock moving out of the factory doors we may have some pretty good dealer offers looming.
It may be a matter of getting exactly the car you want at a price you are thrilled with over the next few months.
'Cash for Clunkers' underway
The controversial ‘Cash For Clunkers’ scheme has been signed off by President Obama in the USA.
Under this scheme the US Government will help buyers pay for a more fuel efficient car or truck if they trade in a less fuel efficient vehicle.
Whilst it has been widely welcomed by the motor trade it does have its detractors.
A generous trade-in allowance will be applied to the used vehicle, but conditions apply, and that’s where the controversy sets in.
In simplified terms, here’s what happens
1.
The trade in vehicle must be between 8 and 25 years old.
2. The trade in vehicle must have a fuel economy of 18 mpg or less
3. The trade in vehicle must be scrapped.
4. The new vehicle cannot have a recommended price exceeding $45,000 US.
5. The new vehicle must have an economy value of at least 22mpg (cars), or 18mpg (smaller trucks).
If the new vehicle rates at 10mpg better than the trade in then the Government will give the customer $4500 for the scrapped vehicle.
This is a temporary measure, but it has been much applauded by the motor trade as an effective and greenie friendly stimulus package.
However it does have its detractors.
The detractors say:-
1. It’s wrong to include imported new vehicles in the scheme, it should solely promote local manufacturers.
2. It encourages exactly the wrong people to participate, those with old, virtually worthless vehicles and they can’t afford a brand new vehicle.
3. The special allowance is more than compromised by the greenhouse emissions impact of making a new vehicle.
4. The cost is far too much to benefit far too few.
But, of course, the US car producers are in such dire straights that any initiative will be warmly welcomed, and this is one of them.
Will it spread to Australia?
Well, Germany already has a similar stimulus, and it’s pretty certain that these schemes will be closely monitored by the Australian Government, but, as such a high proportion of our cars are imported, a similar scheme would be unlikely to produce such a profound benefit.
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