September SAAR to Reach 8.8 Million, New-Car Demand Declines, Says Edmunds.com

SANTA MONICA, Calif. — The success of “Cash for Clunkers” in August created one of the biggest aberrations in the auto industry’s sales history, leading Edmunds.com analysts to predict September’s seasonally adjusted annual rate (SAAR) of 8.8 million.

"The best month of the year for car sales is being quickly followed by what could be the worst month of the year," noted Edmunds.com CEO Jeremy Anwyl. "Cash for Clunkers was supposed to prime the pump, but that is a physics concept, and economics is quite different. Demand has dropped off significantly since the program ended."

"Based on the current rate of sales, we anticipate that September's SAAR will be 8.8 million units," stated Edmunds.com Senior Statistician Zhenwei Zhou. "Last year when the bottom was falling out of the economy, September SAAR was 12.5 million, and prior to that it had been over 16 million for years. Many people regard February as the darkest month of the recession, but even then the SAAR was higher, at 9.1 million units."

With the drop-off in demand for new car sales, transaction prices are falling, and so are dealer profit margins.

In early August, Edmunds.com analysts reported that Cash for Clunkers shoppers were paying higher prices for their cars, perhaps neglecting to negotiate distracted by the government rebate. And, limited supply and high demand drove prices up for everyone else as well. Now that the program is over and demand has slowed, consumer discounts are getting greater even as the average vehicle purchased is more expensive.

This week the U.S. Labor Department released a report suggesting that Cash for Clunkers triggered a 1.3-percent decline in the new vehicle price index, but analysis on AutoObserver.com explains that it can largely be attributed to "forced downsizing." As a result of the program's fuel economy requirements and luxury car price cap, participants were drawn to less expensive vehicles.

"The program also brought into the market people who are highly price sensitive and normally might have bought used cars," noted Edmunds.com CEO Jeremy Anwyl.

"The average transaction price on new vehicles purchased in August fell to its lowest level since May 2008, when it was skyrocketing gas prices — not a government incentive — that pushed buyers toward smaller, fuel-efficient, less expensive vehicles," reported Edmunds.com Senior Analyst Michelle Krebs.

Consider the following points determined by Edmunds.com's analysts:

• Share of the U.S. car market for compact and subcompact vehicles soared 40 percent in August compared with August 2008.

• In August, the average monthly payment on a new car was $409, the average down payment was $2,780 and amount financed was $21,897 — the lowest levels of the year.

• Because so many "clunker" trade-ins were already paid off, the average negative equity of a vehicle trade-in fell to $3,858 in August from the $4,737 high seen in January.

More analysis of the effect of Cash for Clunkers can be found at http://www.autoobserver.com/2009/09/cash-for-clunkers-boosted-economy-prompted-lower-car-prices.html.