WASHINGTON (June 24, 2009)-For all the hoopla surrounding the "cash for clunkers" legislation, it will have only a modest effect on auto sales and won't match the impact of a similar program in Germany, analysts said.
Vehicle sales from July 1 to Nov. 1, the time frame for the program, will rise by 70,000 to 200,000 vehicles as a result of the bill that passed Congress last week, four analysts estimated.
Edmunds.com estimates that without the incentive, U.S. light vehicle sales would total 2.85 million vehicles during that period. With the cash for clunkers incentive, even the most optimistic forecast would result in a sales boost of only 7 percent.
Since sales through May are down 36 percent year to year, the cash for clunkers incentive won't lift the industry out of recession, said Jeremy Anwyl, chief executive of Edmunds.com. "This is kind of a non-event, a huge missed opportunity."
The $1 billion bill offers cash vouchers to buyers who trade in vehicles for new, more fuel-efficient cars and light trucks.
Vouchers of $3,500 would be given to owners of vehicles that get combined city/highway fuel economy of 18 mpg or less who buy a car that gets at least 22 mpg. Vouchers would rise to $4,500 if the new car gets at least 10 mpg more than the trade-in.
Consumers who trade in an SUV, pickup or minivan that gets 18 mpg or less would receive $3,500 if they buy a new truck that gets at least 2 mpg more. That would rise to $4,500 if the new truck gets at least 5 mpg more.
Germany has achieved success with a similar program. Registration of new vehicles there rose 40 percent in May compared with a year ago.
Analysts cite a number of shortcomings in the U.S. legislation that will limit its impact. For one thing, old cars or trucks can only be swapped for new vehicles. But many motorists who own a 10- or 15-year-old clunker probably can't afford a new vehicle, even with the new incentive. "The consumer mindset isn't in synch during these times with the requirements of the bill," said analyst Rebecca Lindland of IHS Global Insight in Boston.
And consumers only get paid the voucher-not the actual trade-in value of the vehicle. So consumers have an economic incentive to trade in only those vehicles worth less than $4,500.
Fewer than 25 million cars out of the 250 million on the road get less than 18 mpg and are worth less than $4,500, the Congressional Budget Office says. The vast majority are trucks.
"A 10-year-old Ford Taurus that was once the best seller in the U.S. won't be eligible because it gets more than 18 mpg," said Joseph Barker, a forecaster for CSM Worldwide consultants. "The program excludes the heart of the market."