Analyst Says Cash For Clunkers Had Good Effect

The Cash For Clunkers program showed people were willing to make big-ticket purchases again, says an analyst with an economics-forecasting firm. Aaron Bragman of IHS Global Insight says the program also had a trickle-down effect across the U.S. economy.

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ROBERT SIEGEL, host:

Now that the Cash for Clunkers program is over, analysts are trying to figure out what just happened. Did 700,000 trade-ins make the air cleaner? Did it keep Americans working or did they just concentrate sales in an intense two-month period - sales that would've been made otherwise over a span of a few more months? One of the analysts sorting out the data is Aaron Bragman of IHS Global Insight, that's an international economics-forecasting firm. And Aaron Bragman joins us from Ann Arbor, Michigan. Welcome to the program.

Mr. AARON BRAGMAN (Research Analyst, Automotive, IHS Global Insight): Thank you, Robert.

SIEGEL: First question: Of the 10 most popular models that people bought, seven were Japanese brands, one Korean make, two Fords, and all 10 of the most popular clunkers that were traded in were American brands. So did we just stimulate the Far East Asian economy rather than our own?

Mr. BRAGMAN: To some extent, yeah. They're making a lot of noise about it, the majority of these vehicles being foreign nameplates. But when we look at what these actual vehicles are and what they represent in the overall market, the passenger-car market tends to be more skewed towards the foreign nameplates. They've been gaining a lot of ground over the years. So it looks as we would expect it to. Ford actually did fairly well. They have the Focus up there at number four and they have the only truck in the top 10 with the Escape crossover. So they did better than GM did frankly.

SIEGEL: When you look at the top 10 trade-in vehicles, the clunkers that the people sold - Ford Explorer, Ford F-150, Jeep Grand Cherokee, Dodge Caravan, Jeep Cherokee, Chevrolet Blazer, Chevrolet C-1500, Ford F-150 Pickup, Ford Windstar. I mean, people were trading back the 1990s here in this program. And this is what they were getting off their hands.

(Soundbite of laughter)

Mr. BRAGMAN: It's interesting because a lot of these vehicles were seen as kind of lifestyle expressions back in the '90s. People purchased them and may not really have needed a four-wheel drive Ford Explorer that - but it was cool to have it. They basically replaced the sports car as the big macho image-making kind of vehicle.

SIEGEL: Yeah, that's the number one…

Mr. BRAGMAN: And…

SIEGEL: The four-wheel drive Ford Explorer is the number one clunker that was traded in.

Mr. BRAGMAN: Right. And it's not the most efficient vehicle in the world. And after they got a bit of a scare with $4 gasoline this time last year, the people may have realized, you know what, do we really need this thing? Can we turn it in, get some money for it, get something more fuel-efficient. And that seems to be what they did.

SIEGEL: Does a spike in sales like this one, does it actually keep people working at the factory, where the auto or the parts for the auto are made, or is it really keeping people in work at the dealership, the sales staff?

Mr. BRAGMAN: It's really keeping people working all over, it would seem. Ford, GM, a lot of the automakers have actually increased production because their inventory's been almost completed depleted by this program. So we are seeing people go back to work at the factories and it has a trickle-down effect. It's not just the automakers but it's the parts makers, it's the diner next to the parts plant that's now got a good lunch crew again. So, it - the trickle-down effect goes really to all areas of the economy. That's the impact that manufacturing has.

SIEGEL: So if the average of the vehicles that were traded-in for - mileage per gallon was almost 25 miles per gallon and the trade-in mileage is under 16 miles per gallon, is that a huge change in terms of the cars on the road in the U.S.?

Mr. BRAGMAN: It'll depend honestly because a lot of these clunkers were not used as often as the new cars are going to be. So, one of the data points that's come up that people are kind of looking into is will the new vehicles actually result in a fuel savings, even though they're more efficient, if they get used a lot more than the old cars do? So, that's one of the areas that people are looking at.

SIEGEL: Bottom-line, there's so many ways in which one could judge the Cash For Clunkers Program, but in your view did it succeed and what does that mean?

Mr. BRAGMAN: I think it did have a good effect. And the most, I think appealing effect of it, is that it got people used to making big ticket purchases again. That's really what has to improve. We have to see customer confidence improving, people go back out and start spending money. And this I think showed that there is a willingness to spend money and make big ticket purchases and take on new debt if there's the opportunity and the deals look good enough.

SIEGEL: Aaron Bragman, thank you very much for talking with us about…

Mr. BRAGMAN: My pleasure.

SIEGEL: …Cash For Clunkers. Aaron Bragman of IHS Global Insight spoke to us from Ann Arbor, Michigan.

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