In a recent story on MSNBC titled: Clunkers’ moved almost 700,000 new cars it points out that the “biggest industry beneficiaries of this US program were Japanese automakers Toyota, Honda and Nissan, which accounted for 41 percent of the new vehicle sales. That outpaced Detroit automakers General Motors, Ford and Chrysler, which had a share of nearly 39 percent. Toyota Motor Corp. led the industry with 19.4 percent of new sales, followed by General Motors Co. with 17.6 percent and Ford Motor Co. with 14.4 percent.”
Whether this program will be gauged as success or failure will be judged by history. In the meantime, the story quotes Transportation Secretary Ray LaHood “The Obama administration declared the program a major success, saying Cash for Clunkers provided a needed stimulus to the auto industry and the broader economy. Manufacturing plants have added shifts and recalled workers. Moribund showrooms were brought back to life and consumers bought fuel-efficient cars that will save them money and improve the environment.”
Jeremy Anwyl, CEO of the auto Web site Edmunds.com, said “dealers and automakers clearly gained from the big boost in sales,” however he adds ….“We have created a sales bubble and now that bubble has burst.”
So we understand this is not a sustainable program. Auto manufacturers are seeing this burst of demand, and now need to understand as our economy begins to move in a growth direction, what are the possible demand situations they will need to plan for.
How many cars were not sold in this program due to a lack of inventory? What missed opportunities might be around the corner if the economy rebounds sooner than later? OEM’s and their supply partners will certainly need to “know how to grow” and at what pace. When should they begin ramping back up beyond the bubble? Do they have the right decision making tools to prepare them for this?
My colleague recently published an interesting post that speaks to this question.
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Tags: Demand planning, Demand-supply balancing, Supply management
Posted in Inventory management
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An unexplored part of this issue is the legal aftermath: how many of those cars will be diverted from scrapping and sold or exported? How long will the investigations and prosecutions continue? In the end, the legal industry may be the biggest beneficiary.
Good Article. With the American automobile industry in desparate straits it does not surprise me that most of the salees from clunker turn in were for foreign cars. With many of Toyota and Honda cars made here in the Southern USA it will help the economy but only the foreign car industry. Until the American auto makers comeback and build smaller and better cars (No Mini-Vans and SUV’s) the econmic benefits will continue to go to the Japanese auto makers.
I think the administration missed the boat on this proram. A combination of increasing car sales and significant increase in gas mileage could have occurred if they provided tiered rebates.
$1000 for an increase of 10 mpg
$2000 for an increase of 15 mpg
$4000 for an increase of 20 mpg.
$5000 for an increase of 25 mpg.
It’s hard to say what the actual level of activity will result after the incentive program. My own opinion is that we should see a definite increase in activity from pre-incentive sales days. I base this on the very unscientific ideas that follow.
1. The number one clunkers were the Ford Explorer 4WD, 2WD, and F150. Typically, these vehicles were not immediately in need of replacement. I think the average had some 2 to 3 years useful life in them. Therefore, I think the program might of pulled in sales from 2 to 3 years out, but not that much that was 2-3 months out.
2. The government spent $3 Billion to stimulate at least $6 Billion in sales. That kind of expenditure has got to stimulate the economy. (I understand that $1.00 spend generates $2.50 increase in GNP). Given the total expenditure was made over a short period (1 month), this has to have a positive effect.
3. We cleared a lot of dealers of the 2009 models. This makes way for the 2010’s. This makes room for the manufacturers to start filling the pipeline without having to worry about leftover 2009’s.
4. I don’t know if this has anything to do with the cash for clunkers program, but I noticed a slight uptick in the price of used cars. This is a good leading indicator to increased new car sales.
5. Don’t write off the American manufacturers yet!
Will be very interesting indeed to see how the auto industry in US holds up now that the Cash for clunkers program has ended. Australians will be watching very closely.