Cash for Clunking Politicians and Auto Makers
Tim Rodenberger
8-11-09
For those of you who do not know me personally or are trying to forget after the last time I gave you a ride, I drive an old 92 Dodge Spirit SE that Evel Knievel would refuse a lift in. The air conditioner is shot, the speakers are blown, and I’ve replaced every major part including the engine and the starter (twice). Come to think of it, the only part left to drop is the transmission. Lastly, the paint job is worse than an Andy Warhol ripoff as the defective stock paintjob has long-since been peeling and the former owner of the vehicle did not pay heed to the recall notice.
So basically, for all intents and purposes, my car “Spunky” (it putters) is a clunker. She may have over 239,000 miles and still runs well, but I think it’s time to retire the old dog and get a newer vehicle that will last another North Dakota winter. Now, I heard on the news about this government handout called “Cash-for-Clunkers,” where you trade in your old clunker up to $4,500 to purchase a new one. The purpose of the program is (from
www.cars.gov)...
“The CAR Allowance Rebate System (CARS) is a $3 billion government program that helps consumers buy or lease a more environmentally friendly vehicle from a participating dealer when they trade in a less fuel-efficient car or truck. The program is designed to energize the economy; boost auto sales and put safer, cleaner and more fuel-efficient vehicles on the nation's roadways.”
OK, so I drive an inefficient vehicle that has the potential of killing me and injuring any passengers and it has 19-24 fuel economy so I figure I can cash in on this action since I’m purchasing a new car anyway, right?
WRONG!!!
According to the same website, vehicles must generally be less than 18 miles per gallon so I miss it by one gallon. Turns out Spunky the Death Trap is more environmentally friendly than say a 97 Volkswagen Passat, which gets .5mpg less and qualifies for the program.
WTF mate?!
I then went to my local Ford dealer to get more details on the subject and he told me that I could qualify for the program, but I had to get a new vehicle with a certain fuel-efficiency range in order to get the money. I asked the salesman what I would qualify under and he told me the following.
Toyota Prius (Hybrid)
Ford Fusion (Hybrid)
Toyote Camry (Hybrid)
Ford Focus (Hybrid)
Honda Civic (Also hybrid)
Notice a trend here?
Now, according to the Department of Transportation these are the most popular trade in models and people are just eating them up… so I should just shut up and get one, right?
Well, for those of you who did not succumb to morbid curiosity and glance at my profile photo, you’d notice that I’m six feet five inches tall with a husky build (working on making it more “mammoth”). I do not fit in most small cars. Now that I mention it, in the five years that I have been researching and test driving vehicles, I can only recall around seven different models that I have been able to fit in (Dodge Charger, Chrysler 300, Chevrolet Impala, etc.) and NONE of them were hybrid. Each and every one was a full-size sedan with a minimum of a 3.0 V6 because it has to haul my gargantuan backside (which is currently shrinking thanks to EA Active for the Wii) from point A to B.
Now, granted my situation is a little unique in terms of what vehicles I can fit in to; however, after doing some research and talking about what happened with my co-workers it turns out another one of my co-workers had the same problem.
One of my co-workers, who shall not be named because he is my close friend Matt, drives a car that is even worse than Spunky, namely a late 1980s Pontiac Grand Am with even more mileage and rust than mine. I can recall one very cold winter evening when he and I were at my place and we were supposed to meet the rest of the Wal-Mart electronics staff at Applebees for our monthly beer night. My vehicle was experiencing starter issues and I thought it would be safer to take his car.
Big mistake.
Between my house and Applebees (two miles up the road), his car stalled a grand total of three times… each one at a major intersection which caused me to pucker up my face and another part of my body. Matt’s car also uses an external heater to keep the windshield from frosting given his heater is out.
In short, Matt’s car is more of a clunker and a general hazard to public safety than mine so he should be able to qualify for the Cash for Clunkers, right?
Wrong again!!
According to his manual, Matt’s Grand Am gets 20-25 mpg, which is greater than mine and thereby disqualifying him from the program and getting a vehicle that will not eventually cause an explosion from an overload in the block heater.
So the Cash-for-Clunkers program is not off to a good start since some of us young consumers cannot trade in our aluminum death traps for smaller aluminum death trap. If Jeremy Clarkson has proved anything to me, it’s that hybrids are not efficient at all nor are they bulletproof.
The National Highway Traffic Safety Administration released a statement saying the new Hybrids are “considerably safer than the old clunkers” that are being turned in. Somehow, I do not believe a Toyota Prius, a compact hybrid, is safer to the occupants than a Ford Explorer, a Ford F150 pickup, a Jeep Van Cherokee, or a Dodge Caravan- the top five traded-in vehicles in respective order.
Let’s think safety here.
Yahoo! Auto experts give the 2009 Toyota Prius a safety rating of 7/10 due to other drivers’ lack of awareness to the smaller, silent car that may be around them not to mention the hazard to cyclists. Also, due to the high levels of toxic nickel in the batteries in the hybrids and the smaller light frame should a hybrid be involved in an accident the contents of said battery will spill large amounts of acid, which are known carcinogens.
In other words I may be paying more for gas, which is imported from the Mandan Refinery and not from Saudi Arabia, but I’m just as safe and NOT tied down to a monthly payment.
This brings up the next issue, financing.
OK, so let’s breakdown the logic here of the Cash-for-Clunkers program. Back to hybrids the high price of nickel cadmium and lithium ion batteries as opposed to cheaper, but not earth-friendly, lead batteries raises the overall price on mass production. Not to mention a hybrid engine costs more to make given the electrical, and not mechanical, nature of the parts. Combine this with the fashion statement of owning a hybrid (the New York Times noted that 57% of Prius owners got one for its political and social symbolism) and you got a compact car averaging over $20,000.
The 2009 Honda Civic Hybrid initially MSRPs at $23,000, the 2010 Ford Fusion Hybrid at $27,100, the 2010 Toyota Corolla Hybrid at $26,100, and the 2009 Nissan Altima Hybrid at $26,650. These are relatively expensive vehicles compared to their non-hybrid compact to mid-size sedan counterparts. The 2010 Ford Focus non-hybrid starts at $15,995, the 2010 Toyota Matrix at $16,550, and the 2010 Hyundai Sonata at $18,700.
OK, so let’s compare actual gas and maintenance cost-ratio from a hybrid to a non-hybrid sedan. The vehicle I’m currently looking at, a 2006 Chrysler 300 Touring Sedan that averages 18 to 26 mpg. Let’s compare this to the Toyota Prius’ average mpg of 48-45. You get almost three times the mileage in the city and about 170% more on the highway. Off the bat this sounds awesome but let’s factor in the savings. Let’s say I sustain my vehicle usage by putting in $10 per week (which is actually a lot more than I really do but let’s keep it simple). Times that $10 by the percentage of the difference and you get a savings of $26 a week if I would’ve driven a hybrid. So instead of filling up $10 a week I’d be doing it every other week and a half. Now, let’s times that by how many weeks in the year and you get an annual savings of $1352 a year.
That sounds awesome right? Well… that 2006 Chrysler 300 I’m looking at, they average nationally around $13,000-$15,000. The particular one I’m looking at is a highly limited C-class around $17,400 with a moon roof, Bose surround, and a crap load more. The difference between my hopeful 300 and the baseline Toyota Prius (MSRP $22,000) is $5,000 to nearly $10,000. It would take me 3 ½ to 7 1/3rd years for that to make any sense and this does not include maintenance, which is considerably more costly.
So the hybrids, even the cheaper ones, take years for their cost benefits to mature but now let us examine those who are using the Cash-for-Clunkers program to purchase these vehicles.
OK, so most of these cars eligible for purchase under the Cash-for-Clunkers program are ranging between $22,000 to over $30,000. Subtract the maximum payout of $4,500 and you still have over $18,000 to make payment on. For most people with decent credit this is not too bad since they can probably achieve 5-6% financing. However, these are people trading in old clunkers from the late 1980s to the 1990s, which they would have to have owned for at least five years in order to be eligible.
This suggests that either the people taking part in this program either happened to have the car lying around or it’s their primary vehicle; both are not good signs.
The former is not a good sign as it suggests the persons partaking are just getting a car for the hell of it when they already have a good one. Now, if these were people with good credit and times were good, then it wouldn’t be so bad. HOWEVER, times are not good with a volatile economy that can change in an instance. Such people should be trying to weather the storm and maintain their credit, not take on more when they may lose their job, especially if they’re making other payments such as a mortgage.
The latter is even more disastrous as it most likely suggests that the buyers are low-income trying to build credit. My thought is if you want to build credit, get a credit card, buy gas and food with it and pay it off entirely each month. If you cannot achieve this, don’t even think about making $300-$400 monthly car payments with 8-14% financing (I am NOT making those percentages up). You may get approval from GMAC now, but, chances are, you cannot maintain it and will default thereby making your credit almost as bad as mine (been using cash all my life). This is a ticking time bomb for our automakers and banks in the meantime as it is setting up most customers for the eventual defaulting on their financing, which will give auto dealers a massive surplus of used vehicles and fewer buyers.
Now, I can imagine this program may prove an incentive for some legitimate buyers, who can actually make payment, but it seems as though this program and automakers are deterring such potential car shoppers. I’ll use myself as an example.
I may work at Wal-Mart but I’ve been saving up enough to not only make a 1/3rd down payment on a $15,000 used car but can sustain myself while making $250-$300 monthly payments. I need to build credit anyway. Naturally, I cannot afford to get one of the hybrids, which I don’t fit in anyway, so I thought I’d look into certain fuel-efficient cars that I do fit in that I was looking at already.
Enter the Chevrolet Impala LS.
With its 3.5 V6 getting 19-29 MPG it is the only full-size sedan that has the EPA Fuel-Efficiency Certification. It is generally considered a reliable vehicle and I fit into it perfectly. I can go on for a while as to how it meets my standards but, needless to say, something changed when I started visiting Chevrolet and GM dealerships hoping to take advantage of the Cash-for-Clunkers program.
After I discovered that my car was not eligible for the Cash-for-Clunkers program, I still decided to examine other Impalas to see how much I would have to pay up. I examined the first Impala LS at a Chevy dealership in Bismarck to discover the $23,000 car had turned into a $27,000 one. The SS model, normally a $28,000 vehicle, was now a $32,000 one. It had only been six months since I last examined the exact same year models and they had gone up thousands of dollars and during a recession?! I thought it might be the location since North Dakota is the only state with a surplus and an unemployment rating lower than Arkansas’ literacy rate (below 3%) so it was local supply and demand gouging.
To test my theory I sent out my West Coast Negotiating Team, which consisted entirely of my Dad, to find out if the trend was also occurring in Washington State. He called back the next day and blew my theory away by saying it was happening out there too. Kevin, our good old buddy from Blade Chevrolet in Mount Vernon, Washington (good guys, really) laid it down and said how the Cash-for-Clunkers program is cleaning out lots and General Motors rose prices sharply to take extra profits from the consumers.
To me this is more wrong than the Steelers buying off referees. General Motors, now a government subsidiary of the executive branch and effectively a company owned by every legal taxpayer, who filed bankruptcy not long ago, was overtly screwing over both the customers and the taxpayers (which are inevitably the same thing).
To make matters worse, the massive number of sales GM and others are generating have turned the sales staff into complacent workers. At dealerships both here in Bismarck and in Washington State, my Dad and I increasingly encountered salesmen that just were not interested at all in trying to sell a used vehicle or deal with someone that cannot participate in the Cash-for-Clunkers program. A Chrysler salesman in Washington State cursed out loud at my Dad and told him forget it when he tried to negotiate over a Chrysler 300. While the car was well priced to begin with, the sales staff attempted several bait and switch maneuvers with the prices on their website and at the store and did not even have the vehicle ready six hours after my Dad originally showed up to see it for an appointment.
At a Ford dealership here in Bismarck, I waited five minutes in the quiet show room before I had to ask the receptionist for help. It was almost as if the sales staff knew I was buying used and didn’t want anything to do with me. At a Chevrolet dealership in Bismarck, I received no help for ten minutes at all when I was writing down information on the fact tags sported on the windows of the Impalas.
While these are merely anecdotes, I can go on and on with more stories not just from my Negotiating Team and myself, but from co-workers, customers, and even documented cases online. Such complacency among car dealers is apparently rampant and potentially deadly.
One of the cardinal rules of sales is that you never turn a potential customer down regardless of your current success because they may buy a lot or bring others to buy from you. This notion is especially true of car salesmen since the majority of them are paid on commission whether it is per profit margin or by volume. Just because you’ve made your quote for the month of July does not mean you should not extend an effort to another since alienating one potential customer could backfire in more ways than one. Granted, there is a point when certain customers are not worth the effort and believe me, I’ve seen this working at Wal-Mart: however, this is only a worst-case scenario and shouldn’t be used every time a customer tries to negotiate price. We are STILL in a recession after all.
Lastly, failing to build a strong customer base, thereby laying the foundation for long-term business relationships with customers, will effect your later sales as the Cash-for-Clunkers program is a quick fix and not a sustaining economic reforming program.
Think of it in terms of stocks. No doubt, GM and other auto makers will report excellent sales this quarter, HOWEVER, they will report less the next quarter when the program runs dry and people begin to default on their loans. They did it over their houses and they’ll do it for their vehicles. This will lower their stock prices winter quarter and create a surplus of vehicles.
So, to recap.
1: The cars eligible for trade-in for the Cash-for-Clunkers program is crap as it doesn’t really include clunkers.
2: The vehicles you can get for trade-in suck and have little appeal to the general audience as they’re more inefficient than the public realizes and have few safety features. You’re not saving the planet or your bank account by buying a hybrid.
3: Did I mention you can get a Chevrolet Suburban and a Ford Explorer, a gas-guzzling SUV, for the Cash-for-Clunkers program? Or, at least, you were able to initially.
4: The program is aimed at the wrong people, who traditionally, cannot afford a new car.
5: It has made the auto industry overly complacent over short-term gains but soon-to-be long-term losses as they are gouging prices and ignoring potential long-term business relationships with regular customers.
Is anyone in either Detroit or Washington DC aware that we are amidst a recession that is only going to get worse when the massive amounts of 2009 mortgages default this December? Has Government Motors or the government itself learned anything about how to run a successful business? Just because you’re selling more now doesn’t mean you will later… just like the housing boom. Consistent sales and progress in business requires consistency and progress in service and innovation, NOT in handouts and get-rich-quick schemes like the Cash-for-Clunkers program… which still has not reimbursed the auto dealers yet.
Government Motors, Ford, and Chrysler! It’s time you take some advice from an hourly associate at Wal-Mart- get your heads out of your asses and make a decent product at a decent price and sold by decent people!! The majority of genuine car shoppers do not want some stylish hybrid that supposedly “saves the planet,” which they don’t anyway… they just slow down the decay.
What most people want is a fairly fuel-efficient car that runs well and serves a lot more practical purposes than gas-saving tin boxes that take years to accumulate savings. Unlike corporations, most consumers do not have the overhead to outright buy, or the long-term capacity to finance a $22,000+ vehicle and expect to get savings after the next 3-7 years. A mid-size sedan costing between $12,000-$18,000 sounds a lot more reasonable to expect from America’s car consumers than making them purchase double.
Or better yet, help the dealers empty their inventory by covering the costs of a power-train or bumper-to-bumper warranty since that is, more often than not, a deal breaker among most used sales. It’s usually cheaper ($1,800 to $2,500), a lot more cost effective not to mention practical for the consumer. A vehicle is useless if it breaks outside the manufacture’s typical warranty no matter how new they are and new cars tend to break more than RCA televisions.
So, Detroit and their Washington DC bureaucratic counterparts have learned nothing from the past year pertaining to how to bring very skeptical and practical consumers back into the marketplace. Sure, they brought customers into the car lots but what are the chances they will be bringing those cars back, or worse, have them repossessed? If there is anything the good times in 2006-2007 taught us is that hybrids do not sell well even during times of plenty as they lack a LOT of appeal so do not be surprised if they get returned.
I think Detroit needs a serious crash and humbling experience before they will learn anything about sales. They should take a serious notice of Honda, Toyota, and Hyundai and see how they’re weathering the storm even with the Cash-for-Clunkers program. They’re not playing around with customers or the program as they’re putting out better cars at better prices. Leave it to the Japanese and the Koreans to teach us Americans a lesson about (AGAIN) how to sell cars.
Meanwhile, I will continue to work with Blade Chevrolet since they have been nothing but brutally honest with my Dad and me. They are the only redeeming GM dealership that I’ve seen and I have a feeling there are others. Either way, it’s gonna get a lot worse before it gets better so brace yourself.