June 26th, 2009
Dealix held an informative webinar with experts from both Edmunds and Stoneham Ford on the Cash for Clunkers program today, June 26. The three panelists included Jessica Caldwell, the manager of pricing and industry analysis from Edmunds, John Giamalvo, the director of strategic marketing, also with Edmunds and Mike Warwick, the internet director with Stoneham Ford. The one-hour presentation covered a variety of dealer-essential materials, from vehicle eligibility to consumer reaction to the program.
According to the webinar, consumer interest is building in the Cash for Clunkers. A Dealix survey in May showed that 60 percent of dealers felt consumers were holding back on purchases until Cash for Clunkers became a reality, and 85 percent of dealers surveyed believed the program would help stimulate sales. Nearly all dealers are reporting at least some increase in show-room traffic and calls with questions regarding the federal incentives. What’s more, the Dealix research showed that voucher users have a good chance of becoming brand defectors – opening up an opportunity for dealers to increase their market share in their respective regions.
Caldwell covered the basics of the program, saying Cash for Clunkers is temporary with only $1 billion in funding. That may seem like a steep price tag, but with each consumer eligible for either $3,500 or $4,500 in federal money, that equates to around 250 million automotive units. What’s more, the program is only intended to run from July, 2009 until November, 2009 – a narrow window for dealers and consumers alike.
The program requires old cars getting traded in be crushed, but the definition of a clunker varies depending on vehicle type. For example, passenger cars and SUVs must be from 1984 or newer, while work trucks must be 2001 or older. The trade-in must be in drivable condition and have been registered and insured for at least a year prior to trade in, too. Caldwell predicted the majority of vehicles turned in for the program will be light-duty trucks and SUVs.
In order for a customer to get a $4,500 rebate on a new passenger car, that vehicle must get at least 22 mpg and represent a 10 mpg improvement over the trade in. A 4 mpg improvement will warrant a $3,500 voucher. A new SUV, on the other hand, is required to get at least 18 mpg and represent an improvement of at least 5 mpg over the trade in to be eligible for the $4,500 voucher. An improvement of at least 2 mpg will earn buyers a $3,500 voucher.
New, large light-duty trucks and vans must get at least 15 mpg, and represent an improvement of at least 2 mpg for the $4,500 voucher, or 1 mpg for the $3,500 voucher. New work trucks between 8,500 lbs and 10,000 lbs must simply be of similar size or smaller than the trade in.
There are a few stipulations on what can be purchased with the voucher, too. Only new vehicles are eligible, so consumers holding out for a used car or truck are out of luck. Lease vehicles can take advantage of the voucher as well, but the term must be 5 years or more, and medium-duty trucks enjoy only limited eligibility. Anything with an MSRP of $45,000 or more is out of luck as well.
Caldwell also said that while the National Highway Transportation Safety Administration will handle the organization of the program, it has 30 days to come up with rules and regulations. That means that right now there are a lot of blanks still left to be filled in. According to the presentation, what we do know is that dealers wishing to participate in the program must first register with the NHTSA.
That doesn’t mean the program is mandatory, however. Dealers can decide for themselves whether it’s worth it for them or not. The law stipulates dealers must be reimbursed for the full amount of the voucher in 10 days or less, and there may be a $60 transaction fee per-voucher that the dealer must pay to the U.S. treasury. The good news is that that most scrap yards pay between $150 and $250 per car scrapped in the program, and dealers may get to keep up to $50 of that money to offset the cost of the transaction fee. Unfortunately, there is no reimbursement for storage or transport of the clunkers, and dealers must provide certification that the vehicles have been crushed.
So who can dealers expect to take advantage of the program? Caldwell says that according to Edmunds research, four main groups will make the most of Cash for Clunkers. First off, brand loyalists and defectors will likely take the plunge on a new purchase. Those accustomed to purchasing fuel-efficient imports are likely to be tempted by the large array of less expensive, equally efficient domestic models. Second, Caldwell said empty nesters with a larger, unnecessary vehicle on hand may take this as a sign to get rid of the old car or truck for something more efficient. Similarly, conservative spenders may not be able to pass up the lure of a $4,500 voucher, and low-income individuals will likely use the program to bolster otherwise weak down payments, thereby lowering their monthly payment.
While Caldwell extensively covered the ins and outs of the program, Giamalvo illustrated how dealers could make the most use of Cash for Clunkers as a sales tool, starting with what they can do to get ready. Though there’s still a month before the program gets into full swing, Giamalvo said there’s plenty dealers can do right now to prepare. First and foremost, dealers need to register as soon as the NHTSA allows it. That means being wary of fraudulent registration programs and waiting until the federal government is legitimately registering dealers.
Second, Giamalvo urged dealers to set and meet goals. Though the program should move around 250 million units, he believes it has the potential to boost sales by millions more. Why? Dealers should see a substantial increase in show room traffic due to interest generated by the program. That means any and all staff on hand should be well-trained and prepared to answer questions, even if there’s only a core Cash for Clunkers team. He also urged dealers to take the time before the program goes live to prepare any and all eligible inventory, look into expanding hours to accommodate buyers outside of the traditional hours of operation and highlight aged or retiring inventory.
Stoneham Ford’s Warwick, also stressed the importance of public visibility, saying that now is a perfect time for dealers to get a blog if they don’t have one already, and to look into generating press releases. Warwick says doing so makes information available to the Google crowd that may otherwise miss it.
Edmunds Director of Strategic Marketing also underscored the importance of getting the word out to the public. That means taking advantage of internet marketing, social media outlets like Facebook and Twitter, and underscoring just how much money is available to qualifying buyers. Finally, Giamalvo warned dealers not to underestimate the importance of building on-site excitement.
Aside from prepping dealer teams, Giamalvo also said the Cash for Clunkers program had the potential to tip recent unsold deals. That means individuals who may have had weak or upside down trades, or needed more money down may be able to get into the car they wanted with a voucher. Similarly, dealers should be ready to make a deal with individuals who have cars or trucks that don’t qualify for the program. That means preparing $3,500 deals on aging or retiring inventory and working with individuals to get them into pre-owned inventory.
While the webinar extensively covered all there is to know about the program right now, the NHTSA is expected to release more information in the coming days. Stop by Cars.gov to sign up for email updates on the program.