"Clunker" Program Over, but Private Versions Sprout

Washington's CARS Program (the clunker law) is officially over, after moving somewhere between 700,0000 and 750,000 new cars and trucks off showroom floors.

Considering your point of view, the program has been either a wild success or just another step on the way towards Obama Socialism (when will your neighborhood's Clunker Panel show up at your front door and demand you get rid of your old car and buy a new one, and with the law on their side, too?).

But something we predicted here weeks ago seems to be coming true: on their own, dealers are offering their own versions of the clunker program. I saw one TV ad yesterday in Southern California for a local dealership offering up to $2,500 for a traded-in "clunker" (here's a pertinent story we found: http://www.wkyc.com/news/news_article.aspx?storyid=120481).

The parameters for these private programs will certainly be different from the federal program, so check carefully before getting involved in any deal you may not fully understand. These programs won't be based on a 136-page law, as was CARS, but will be a much more casual way for buyers to feel better about their purchase.

As of today (Thursday), no car-maker has yet jumped into the "private clunker" pool, but it won't be a surprise when it happens (and we say it will).

And any dealer or car-maker considering starting their own clunker operation must make their mind up to do so fast ... the public has a way of forgetting what happened yesterday, much less last week, and jumping in now will allow the dealer or manufacturer to take advantage of the great momentum the fed program has created.

There's no argument about this: CARS brought millions of people into dealerships who wouldn't otherwise have been considering a new-car buy, and, consumer confidence has taken a jump in the past month, something analysts credit to the program putting a lot of us in the mood to buy.

What these private programs really will be are enhanced rebate deals. There won't be any rules about having to junk your old car, disable the engine, etc. The dealer (possibly with help from the car-maker) will just be tossing some more money on the hood of the old car you're trading in.

Let's take a moment and quietly praise Lee Iacocca for his creation of the "buy a car, get a check" rebate ... the industry's first. He'd just been fired from his position as president of Ford Motor Company and quickly went cross-town to ailing Chrysler (for a salary of $1 a year), where a radical program like rebates turned out to be just what the doctor ordered.

If you're a car company or dealer exec, you might not feel so warm and fuzzy about Iacocca's invention, which has become common in every retail industry worldwide. Consumers sure responded in a big way. And like rebate junkies, none of us expects to pay anything near the sticker price for a new car or truck anymore. Or just about anything else, for that matter.

Which brings up one of the most closely-guarded secrets in all of industry and government: what it really costs to build a new car.

For example, rumors said that once Ford had paid off the development and tooling of the original Explorer SUV, which probably took between the initial two and three years of sales, the company was clearing something in the neighborhood of $15,000 on each unit sold. And at its height, Ford was selling more than 1,200 Explorers a day. Yep, a day. Even with my lousy math skills, I know that's a hell of a lot of money coming into Ford's coffers.

As we're located in southern California, it seems right to compare the car industry with the movie business with their arcane complications and methodologies of determining a product's costs and profits (and losses and taxes and write-offs).

Both businesses take years of "pre-production" and by the time a car makes it to the showroom or a film to your local screen, thousands of people and hundreds of companies may have been working full-time for years on it -- and often after all that work and time and money the project either never gets off the ground or is a bomb.

Keep in mind, also, that car dealers buy their cars and trucks from their respective factories; they have to get financing and pay back those loans just like we do. And dealers and car-makers have at least as many rebate and other money-saving deals and bonuses between them as dealers offer the public.

Our point is that by the time the customer sees the Monroney sticker on the new car with the MSRP, the Manufacturer's Suggested Retail Price, that number has little to do with the actual cost of the car or even what the dealer intends to sell it for. The all-important number is what the dealer will ultimately pay the factory for that vehicle.

Even with the incredible amount of information about new and used car-buying and -selling on the Web, the actual cost of shepherding a car along from an idea to a concept and prototyping then to showroom floor and the garages of America remains a true mystery. Just be assured that even with all the clunker programs and rebates and 0% down and free regular maintenance and roadside service and all the other deals, a lot of people are still making a lot of money in the auto industry.

With every new deal, every new "financial product," every new price adjustment in the consumer's favor and adding what were formerly expensive options as standard features, we might actually be paying closer than ever to the actual cost of the car.

Some of you might think that how the price of cars has far out-stripped the cost of inflation is also something the industry needs to deal with, too.

Let us know what you think about what dealers and car-makers should be doing "post-clunker" --- we know for a fact that top industry people stop by here almost daily and my opinions pale in importance to what you, the sophisticated and educated car-buyer, has to say.

So let them have it. How should we be buying cars in the 21st century? Should the car-makers be allowed to own their own dealerships? Should new cars and trucks be bought outright on the Web, delivered by flatbed truck to your home or office, using a system which means you never have to set-foot in a dealership? Should groups of dealers be allowed to band together and create "service supercenters" outside of town, a place where warranty and repair work is done, but a place which the customer never needs to see?

Even with GM's revolutionary use of eBay, allowing customers in California to bid online for various GM makes and models, that customer still has to take delivery of the car or truck at a brick-and-mortar dealership.

In future posts, we'll take a look at how Nissan, through their Infiniti luxury "channel," and Mazda, with their proposed luxury division code-named Amati, both had great opportunities to change the landscape of auto dealing (and servicing) in the US, but choose instead to stick with the status quo.

The auto industry is leaving its exuberant teenage years. Now it needs guidance from you, the adults.

Follow Steve Parker on Twitter: www.twitter.com/autojourno

Comments

[EconoBlast]

Given the nuances of modern, and very legal creative accounting, I am not sure anyone, including the auto manufacturers, have a clue with respect to the “real cost” to create, develop and field a new automobile. The formulation of the vehicles' cost is too buried in write offs, depreciation, and etc.....and it really doesn't matter as the only important thing is: "How much cash to I have to part with the get the thing?"
I am a fan of the market. I bought a new car in March of this year, (pre-clunker program). I believe I did OK as the vehicles’ MSRP was over 24K. The dealer sold , brand new, for $16.5k. as the 2007 had been sitting unsold since October 2006, (30 months).Similar used vehicles of the same year at $13k. In finance terms the dealer was "Upside Down".

A dealer’s best offence is confusion. If the buyer doesn’t know what the market value is for what he or is buying and/or the vehicle the trade in value, then the buyer is lost. He cannot make a sound logical judgment. In short, the more you bring to the dealer to work with ( i.e. nebulous trade in values, the need for tons of variably priced options, poor credit, etc.) the better the dealer's position when doing the deal. Shop your exact vehicle on the marketplace, go cash only, do your research, offer, then buy.

[Steve Parker - Huffpost Blogger]

That's a good comment; thanks for it.
In researching an article I'm writing for the Santa Monica Daily Press newspaper today, I could not get ONE manager at a local dealership to comment on the clunker program, other than an expensive import dealer/manager who said not ONE person came into their store for the clunker program; that the under-$30K cars and trucks did best (to be expected, I guess).
But the point is that dealers are very wary of talking to the press, even in a suddenly 'up' market.
Enjoy that new car!
Steve

[EconoBlast]

Thanks for the comeback Steve!

This does'nt surprise me.

What I have found out is that the process of determining what a car cost the dealer is almost an impossible task, as it changes relative to the needs of both the manufacturer and the dealer. If the manufacturer wants to push a model, he will change the price to the dealer - even 30 mopnths after the fact. ....and, these deals are in concert with the tax regulations of the state where the vehicle is being sold.

On the car that I purchased, the dealer dropped the price $2K by including it as a "Rebate" on the car. The State, however, told me I had to pay taxes on the value before the rebate - thereby relieveing me of an extra $300 in taxes. So "What a car cost" is apparently a super secretive process.

....and I love the car! Thanks.

[johnie2xs]

Assuming for a minute that totally electric or electric hybrid cars will be the next step in the evolution of transportation in this country, a standardization effort should be a step the US manufacturers should adopt.
If they were to get together and share technologies applicable to their present and upcoming design platforms, they could give themselves a decided jump on foreign manufacturers and if done correctly, save themselves a lot of money, and further stimulate the economy and energy savings.

The underlying key would be that instead of recharging the batteries in every instance, the entire battery pack can be swapped out from beneath, in less than a minute at stations much like a gas station allows for refueling of vehicles now. Additionally, instead of the battery being owned by the vehicle owner (as it would be under the present system), the price of the technology itself is virtually wiped from the cost of the vehicle.

If you don't think this is possible, check this out; http://www.betterplace.com/ The technology exists right now. Thinking like this could make a big difference.

Afterthought; The same way the push for more energy conservancy has spurred the automotive industry with CARS, what if manufacturers of large ticket items such as refrigerators, air conditioners, power tools,
microwaves, etc, etc, all started programs of varying value, to entice people to buy. Would this not have a stimulative affect on the economy?

Just a thought.

[Steve Parker - Huffpost Blogger]

Better Place is testing their battery-changing technology with a Tokyo taxi company.
Shame that they can't do it in their own country! I hope people check-out that link you posted.
Steve

[CyCarConsulting]

Dealers have had their own clunkers program forever its called an over allowance. Your trade is worth $200 and the dealer gives you $2,500 on the contract.

As far as a way to sell new cars a different way, good luck. The GM ebay program is not working that well yet, not to say it won't, just too new to tell.

[Aaror]

$15,000 per explorer?
Guess they wouldn't mind if California imposed a tax of $200 per mpg below 30 then???
Great way to fix a budget shortfall and improve LA air quality...