Finance Sources Get Into C4C Action, Says CNW
Not only did Cash for Clunkers pull consumers in their prime new-car buying years into showrooms, but it also got lenders into the action as well.
Not only did Cash for Clunkers pull consumers in their prime new-car buying years into showrooms, but it also got lenders into the action as well.
According to CNW’s August newsletter, the Cash for Clunkers program dragged the median age of new-car buyers down to 47.8 years in July and down to 46.7 years in the first 15 days in August. It also dragged down FICO scores, as lenders were ready to catch this car-buying segment.
“Enticing younger consumers into showrooms is essential for growth. The 35-to-49-age group represents prime new-car buying years with more frequent turnover than either younger or older consumers,” wrote Art Spinella in his report, which looked at data from the end of July and the first two weeks of August. “These people have been generally out of the market for at least two years.”
According to CNW’s report, FICO scores slid from 718.28 in June to 714.82 in July and to 706.58 in August. Additionally, the program was utilized by individuals making $57,000 or more per years, just slightly below the average income for the industry.
“There is little doubt that Cash for Clunkers had a positive impact on July and probably August sales levels, and successfully removed some very poor vehicles from the overall U.S. fleet,” wrote Spinella. “In fact, only 9.7 percent of the clunkers traded in were destined for the crap or auto salvage yard, according to owners. The rest would have remained in the U.S. vehicle fleet for some years to come.
At mid-month in July, the industry was on track to sell 891,000 vehicles, down 22.2 percent from July ’08. Cash for Clunkers promotion and media coverage resulted in the month actually coming in at 997,572, off less than 13 percent.
“CNW’s Floor Traffic Index jumped from a weak 60 points to better than 80, and closing ratios similarly increased,” wrote Spinella. “And the increase in showroom visits served multiple masters.”
According to CNW’s data, the program drew more “lookers” who weren’t even planning to buy a car or truck. “It’s been more than two years since CNW has seen the share of floor traffic consisting of long-term shoppers — those who don’t expect to buy a vehicle for at least a year.”
The program also exposed general consumers to other models. According to CNW, one-in-three program users purchased a vehicle other than the model they originally intended. And the vast majority of those vehicles were higher priced.
The program’s impact was also felt throughout the dealership. “Finance and insurance, parts and service and salespeople in general all benefited from the spurt in business,” wrote Spinella. “VSC penetration increased at most dealerships on the Cash for Clunkers vehicles, while accessories (especially wheels and tires) were hot items, generating healthy profits and decent cash flow.”
The question now is, what will automakers do for an encore? While the program pulled 140,000 individuals from the pent-up demand column, according to CNW, Cash for Clunkers did take the place of manufacturer incentives, with the per-unit incentive figure dropping from $3,855 last year to $3,621 during the current period.
“Big incentives, especially fresh tunes, always generate added business. But when the music stops …,” wrote Spinella. “Well, with an additional $2 billion, they may not have to do much until November and December. But enthusiasm has already begun to wane among consumers.”
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