Clunkers Looks Like Raging Success, but Could Spark Auto Sales Crash Later on

Marketers Move Metal, but at High Cost and With Danger of Lull to Come

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DETROIT (AdAge.com) -- When the government's Cash for Clunkers program ran through $1 billion before its first week was out, the Obama administration touted it as a success that boosted the industry's sales for the entire month of July.

WINNER: Detroit did well with promo, and Ford seemed to benefit most.
WINNER: Detroit did well with promo, and Ford seemed to benefit most. Credit: UPI/Alexis C. Glenn
But it wasn't just Republicans questioning the spin. Some auto experts, such as Peter DeLorenzo, founder and publisher of Autoextremist.com, worry that the program is poaching sales from later in the year, which will cause a virtual sales freeze in November and December. Mr. DeLorenzo called the roughly 200,000 new vehicles sold under the program "a short-term spike." When the program is over, he said, "I think there's going to be a huge hangover, because people will sit there waiting for the next [sales] gimmick. I just hope it's a steady transition, but my fear is it's a short-term feeding frenzy followed by a big giant lull."

Indeed, auto site Edmunds.com estimated that each new model sold cost taxpayers a whopping $20,000 in the first round of the program, which resulted in a gain of only 50,000 unit sales. "The incremental sales are limited and at a considerable cost," said Jeremy Anwyl, CEO of Edmunds.com. "In effect, we are paying consumers to do something most would do anyway."

Art Spinella, president of CNW Marketing Research, said 1.2 million people were interested in Cash for Clunkers and the vast majority of them -- 700,000 -- said they needed to buy a vehicle anyway within several months. Mr. Spinella also said very few of the vehicles traded in under the program were primary household vehicles.

The program was extended last week when the Senate okayed backing it with $2 billion in additional funding.

Nearly half American
According to the latest data available from the government on Aug. 5, nearly half the new vehicles sold under the program were from Detroit's Big Three, which tallied a combined share of 45%.

Depending on who was counting, four of the top 10 models were Detroit metal: Ford Focus (No. 2); Ford Escape (No. 7); Dodge Caliber (No. 8) and Chevrolet Cobalt (No. 10). The Toyota Corolla was tops, with the brand's Prius hybrid in fourth and Camry in fifth.

But according to research by auto site Edmunds.com last week, the Ford Escape SUV was the best-selling model and two pick-ups were in the Top 10: GM's Chevy Silverado and Ford's F-150. The discrepancy arrived because Uncle Sam considers each of the six versions of the SUV (as well as different versions of the trucks) to be a separate model, while Edmunds tallied all Escape model sales. By Edmunds' count, eight of the top 10 spots were held by U.S. vehicles -- four for Ford, two each for GM and Chrysler.

"Ford has gotten an enormous boost out of this program," said Mr. Spinella, who said positive word-of-mouth was cited as the No. 1 reason, at 21%, why consumers bought a Ford. (WPP Group's Team Detroit, Dearborn, Mich., handles.)

But Mr. Spinella said the real winner is Hyundai Motor America, which jumped the gun by advertising in early July that it was offering the tax credits ahead of the government's July 24 start date. "That is just smart marketing," Mr. Spinella said. (Innocean Worldwide Americas, Irvine, Calif., handles Hyundai.)

Different buyers
Not everyone believes those who have bought vehicles under Cash for Clunkers would have done so without the campaign. Acxiom's Tim Longnecker, VP of the auto and tech practice at the online-marketing-services firm, said he doesn't think the program has encroached on sales from later in the year, because the traded-in models were 10 years or older, representing a different kind of buyer than the type that comes into the market every three to five years.

And automakers still have a huge opportunity to aggressively market by e-mail, mobile or U.S. mail to consumers who expressed interest in the program but did not participate.

Clearly the maximum government credit of $4,500 attracted buyers, said Edmunds.com, which reported that the industry's average incentive in June was $2,869 per vehicle and $2,706 in July.

Mr. Longnecker said he doesn't suggest that every carmaker now offer incentives of $4,500 per vehicle. "The automakers have to try to figure out how to continue to create some level of bounce in the market."

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