DETROIT -- The cash-for-clunkers program helped position Detroit automakers for the coming recovery in auto sales after years of business mistakes, an auto analyst said today.
“Anything we could do wrong, we did. We over-incentivized our business. We went heavily into subprime. We had a tendency to overbuild inventory and try to give it away. We had problems raising money. We had problems leasing,” said George Magliano, director of North American auto industry research for IHS Global Insight.
“What really cleared the debt was cash for clunkers,” Magliano said.
The promise of up to $4,500 for trading in low-gas-mileage vehicles for new vehicles with better fuel economy brought consumers into dealerships and generated new business from used-vehicle buyers, Magliano said at IHS Global Insight’s automotive conference in suburban Detroit.
Studies have shown the program lured people who wouldn’t have bought a car for a year to 18 months, and it eliminated the need for Ford Motor Co., General Motors Co. and Chrysler Group to hold year-end fire sales, he said.
“And it only cost every taxpayer in this country about $12 a head, which isn’t bad,” Magliano said.
The clunker boost
The federal government’s clunkers initiative boosted the U.S. seasonally adjusted annual sales rate in August to 13.7 million units, the highest since August 2008. Overall sales for the month grew 1 percent -- the first year-over-year increase since October 2007.
But IHS Global Insight analysts and other forecasters say sales this month have fallen to a rate of 9.3 million units, a level last seen in March. That rate will continue to improve next year and in 2011, Magliano said, as the job market recovers and consumers return to showrooms.
IHS Global Insight predicts U.S. light-vehicle sales will total 10.3 million units this year, up from the market research firm’s 9.7 million-unit forecast before the launch of the cash-for-clunkers program.
Sales will total 11.2 million in 2010, the firm says, just below the 11.3 million units in its forecast before cash for clunkers.
Sales will reach 13.8 million in 2011, IHS Global Insight predicts. They totaled 13.2 million last year and 16.2 million in 2007.
The recession is over
The recession ended in June in the United States, said Nariman Behravesh, IHS Global Insight’s chief economist. Germany, France and Japan exited their recessions earlier in the year -- perhaps April or May, he said.
But U.S. businesses won’t feel as if they’re in a recovery period until 2011, he said.
“Nine out of 10 households have the financing to buy a car, to buy a house,” Behravesh said. “Why aren’t they spending? Because they’re scared.”
Auto sales will improve gradually because U.S. sales over the past decade exceeded the typical rate of replacement, Magliano said.
“Our business, because of our excesses, will lag the economy,” he said. “We sold 16, 17 million units over a 10-year span. People are holding off.”