Cash For Clunkers - Scary Thoughts for Dealers

I just saw an interview with a Dodge dealer in Michigan City. Like many franchised auto dealers, he has already taken in a larger number of "clunker" trades - 13 as of this morning. The report indicated there are many other dealers who have already traded for 30 or more.

Do you see the problem yet? There are plenty with the latest Congressional brainchild - but this particular problem is in the math.

Congress has allotted the CARS program one billion dollars to reimburse dealers for qualified trades. At an average of $4,000 per trade, that is a cap of 250,000 vehicles that will be eligible for reimbursement.

And while current averages are not yet known, assume for a minute our Michigan dealer’s 13 clunker trades represents the national average. If that is the case, multiplied by 20,000 franchised dealers, we are already 10,000 vehicles OVER the amount the program is scheduled to fund!

We still don't know how long it is going to take the dealers to get reimbursed. The window of "opportunity" here, if you can call it that, is huge.

So just how many dealers are already sitting on crap cars with $4,500 ACV's? There could be thousands.

How's that for scary?

In the end, Congress will probably just print more money but who knows for sure. They haven't gone out of their way to protect wrongfully terminated Chrysler and GM dealers.

Cash for Clunkers / CARS continues to be a mess.

I cannot wait for government run health care.

Welcome Back GM

GM's announcement yesterday that they will get back into consumer vehicle leasing is great news. Even if it is only available on their luxury lines, it should spur action with the other captive finance companies and hopefully create a spark with independent banks.

Wells Fargo, Huntington and Fifth Third are three independent banks with a long history of vehicle leasing. Along with virtually everyone else, they suddenly exited the market about this time last year with a rash reaction to $4 / gallon gasoline and Chrysler, GM and Ford's mass exodus out of all or most of their previous leasing program.

The market is in desperate need for new lease funding sources - particularly with late model pre-owned. Unfortunately, most banks' risk managers have unfounded fear about pre-owned leasing (POL).

If they would think about it, a 36 month pre-owned lease on a 1YO vehicle poses LESS residual risk than the same vehicle leased a year ago for 48 months. Both vehicles will come off lease at the same time but the pre-owned lease encountered most of its depreciation under different ownership.

There used to be some legitimate concerns about existing equipment on a pre-owned vehicle - or lack thereof. However, Chrome Data and other vehicle configurators are mitigating much if not all of that risk.

I just don't get the banks' negative views on POL.

Regardless, GM's re-entry into the leasing market is good news. Here's hoping they learn from past mistakes and resist setting unrealistically high residuals.

More Insight on the CARS Debacle

Here's a good video report from JJ's AutoFinanceNews.net: http://autofinancenews.net/video/video/show?id=2192375%3AVideo%3A20602&xgs=1

CARS Mess Has Only Just Begun

As my grandfather would say, "The Federal Government could f*ck up a wet dream."

In their infinite wisdom, the EPA increased the combined MPG on certain vehicles last Friday. What impact did this have on buyers looking to take advantage of the CARS / Cash for Clunkers program?

Plenty as our buddies at Auto Remarketing Today reveal at: http://www.autoremarketing.com/ar/news/story.html?id=9804

How To Get Best Price For Your Next New Car

Massive rebates are coming into the market on the heels of the government's Cash for Clunkers (or CARS program). With dealers literally starving for new sales, now may very well be historic times for the new car shopper.

As you set about buying your next new car, you are probably wondering the best way to establish the true market value and secure the best possible price.

Edmunds.com has done very well with their True Market Value figures or TMV. There is also a new site www.truecar.com that can help as well.

Regardless, true market value pricing is important to know so you can set realistic expectations about how much your new car is really worth.

Set your price at AutoBidsOnline.com and let dealers compete to meet it. Compared to requesting a "free" quote, you can quickly see how AutoBids delivers much more competitive pricing than other car buying sites.

When dealers respond to your buy bid, you control the negotiation and spend zero time playing the dealer sales game. By knowing the true value of your car, you take the uncertainty out of the deal.

You may think that dealers will shy away from these offers, assuming that they can make more money selling to someone else. Of course, dealers are in the business to make money, so they are not likely to accept offers that equate to a loss for their dealership. But money is money. Even if you are only offering a small profit for your dealer based on the price you want to buy at, a speedy transaction is often well worth consideration for the dealer.

Additionally, AutoBids dealers know you are serious about buying now. They too grow tired of online tire-kickers much as you grow tired of all the dealership "games".

Our dealers are willing at competitive prices because they are assured of a quick turn. AutoBids deals require considerably less time than the traditional type of sale. When a dealer doesn’t need to spend time selling to you, their workload is significantly reduced.

So spend the time necessary to determine the true market value of your next car but submit it as a buy bid at AutoBidsOnline.com. You'll save a ton of time and get a great deal too.

Cash for Clunkers Set To Disappoint - BIG TIME.

And it's going to be a real pain for all involved. Why you ask? Afterall, there is great anticipation of the program's official launch on Friday 7/24 and there is plenty of information on the web explaining how it will work.

Yet most consumers believe they are going to get some kind of voucher they can use when they trade in their "clunker".

Unfortunately, this is a big misconception. The program is only going to benefit those whose trade-in value is worth less than $4,500 (or $3,500 in some cases). Far less in reality.

I want to repeat that.

Unless your trade is worth LESS than your tax credit, Cash for Clunkers (or CARS as it is now officially called) won't add up to anything more than a hill of beans.

I had my "aha" moment last night talking with well known auto industry expert David Ruggles of AutosAndEconomics.

According to Ruggles, you've got to look at the program from a dealer's perspective to truly understand it.

When a dealer takes a trade, he bases the trade-in credit for what he can resell it for to another pre-owned buyer. Most who qualify for the program are not thinking about this very important aspect of the business. And unless we get the word out, the dealer is going to take the blame.

Here's a simple example that Ruggles posed that made it crystal clear:

Let's say you have a 2000 Dodge Caravan that qualifies for CARS and has a trade-in value of $4,500. You go to the dealer expecting to get $4,500 for your trade PLUS your handy little $4,500 "voucher" from the government. You'll get $9,000 for your trade, right?

WRONG.

The dealer cannot resell your Caravan and recoup the $4,500 you wanted him to give you for your trade. This is because CARS requires the dealer to SCRAP your Caravan.

So the typical customer goes to the dealer thinking he's going to get $9,000 for his trade when in reality he's only going to get $4,500. Most customers are going to be really pissed and blame the dealer when it's not the dealer's fault at all.

The only real beneficiaries of the program are going to be those who truly have a "clunker" that has no significant market value.

Given the state of the current economy, Cash for Clunkers is generating a buzz that I've never quite seen before. Consumers and dealers are all chomping at the bit to take advantage of it but few really understand how its going to work.

Expect Big Improvement In July's Used Car Market

According to AutoRemarketing Today and highly regarded and CNW Research, July is going to be a great month for pre-owned vehicle sales.

What is the cause? Would you believe it has much to do with the fallout of the Chrysler and GM bankruptcies?

According to company president Art Spinella, "The surge in independent sales can be traced to franchised dealership closures. Some of the smaller General Motors and Chrysler stores have reconfigured themselves as used-car outlets."

Read more

Toyota In Trouble?

Great stuff from Dr. Mike Smitka at AutosAndEconomics: http://autosandeconomics.blogspot.com/2009/07/toyota-and-general-motors.html.

A great read full of compelling original thought.

Well done Dr. Mike.

Strong Wholesale Values Foretell Brighter Days Ahead

Ricky Beggs, managing editor of Black Book, just reported that all 10 used car segments have shown increased wholesale values for the second time in the last three weeks. And as a whole, cars have been up 6 weeks in a row and trucks have been up 8 in a row.

What does this mean for new car buyer? Quite simply, your trade is worth more today than it was two months ago and you likely have additional room to negotiate a better deal on your next new car.

BB's findings could be a sign of an overall strengthening across both the new and used car markets, but Beggs did not speculate. I think it is the result of more value conscious shoppers eschewing the premium on the purchase price of a new car and turning to the perceived value of late model pre-owned.

Yet many 2008 used cars now cost almost as much to buy as their 2009 counterparts. When that is the case, why on earth would you buy the 08 model?

Additionally, there are a large number of buyers who just do not want to put up with the headache associated with purchasing a used car no matter what the cost. In their minds, the additional security and warranty is worth the additional investment in a new car.

Lastly, it is important to note, there continue to be massive rebates and incentives available on new cars that are just not there for used. $4,000 cash back or 0% financing on 09 Chevy Avalanches and $2,000 cash or 1.9% financing on 2010 Toyota Tundras are just two examples.

Some Possible Protection for Terminated Dealers

This of note from Automotive News. One thing most people do not understand, dealers are the manufacturer's (OEM's) ONLY customers. OEM's by law cannot sell directly to consumers and all dealers pay the SAME amount to purchase a vehicle from their OEM.

Tell me how the reduction of dealers is making Chrysler or GM any additional profit?

Those who contend dealers are a cost center for the OEM's fail to acknowledge the manufacturers pass on virtually EVERY cost associated with supporting the dealer TO THE DEALER. Each month, dealers are assessed for their portion of consumer marketing, sales training, computer software and other systems support.

Dealers are reimbursed for warranty work they provide on behalf of the OEM. But does anyone think a reduction in dealers is going to lead to a reduction in warranty repairs? Of course not. And even if it did, the OEM would be hurt in the long run.

Many of the dealer terminations are nothing more than the OEM using BK law to rid themselves of dealers who do not cow-tow to their parent company's beck and call.

Neil Roland Automotive News July 8, 2009 - 2:44 pm ET WASHINGTON -- Terminated dealerships would be restored to their status before General Motors and Chrysler LLC filed for bankruptcy this spring, under legislation that passed a House committee last night. But the measure could face procedural hurdles.

A provision of the fiscal 2010 financial services spending bill would require GM and Chrysler to work through state courts rather than U.S. Bankruptcy Court if the automakers wanted to continue with the terminations, said Rep. Steven LaTourette, R-Ohio. LaTourette sponsored the dealer amendment that passed the House Appropriations Committee by voice vote last night.

He said federal funding to GM and Chrysler would be cut off if they didn't abide by the provisions of the bill."

Car companies have used bankruptcy to run roughshod over state bankruptcy laws," LaTourette said in an interview.

State laws are more protective of dealer rights than are Chapter 11 bankruptcy provisions. GM filed for Chapter 11 bankruptcy June 1 and is poised to emerge with its most profitable assets and $50 billion in government financing as early as tomorrow.

GM opposes the House bill."Such legislation, if passed, would put our long-term viability at risk," GM spokesman Greg Martin said in an e-mail. "We've taken extraordinary efforts, from product planning to manufacturing to labor agreements, to reinvent the company, and we need a dealer network to match. This legislation seeks to overturn the Bankruptcy Court's decision after the fact to protect a single stakeholder among so many that have been called to sacrifice during our restructuring."

A Chrysler spokesmen did not immediately respond to requests for comment.GM has announced plans to terminate about 2,400 of its 6,000 dealerships. Chrysler has terminated about a quarter of its dealerships -- 789.

The spending bill, with the dealer amendment, is supposed to go to the House floor next Wednesday, LaTourette said. But at that time, the amendment could be subject to lawmaker attempts to excise it. Policy changes such as the dealer provision are not supposed to be included in spending bills, LaTourette said.Some lawmakers will ask the House Rules Committee early next week to issue a rule to protect the bill from so-called "point of order" challenges that would spike the dealer provision, he said.