Analyst On Cash-For-Clunkers Program The government's cash-for-clunkers program ran out of funds only days after it was launched. Gary Dilts, senior vice president of global automotives at the market research firm J.D. Power, offers his insight.
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Analyst On Cash-For-Clunkers Program

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Analyst On Cash-For-Clunkers Program

Analyst On Cash-For-Clunkers Program

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So why did the Cash-for-Clunker fund dry up so quickly and did it boost car sales? Gary Dilts is going to help answer those questions for us. He's in Detroit, where he is senior vice president of Global Automotives at the big market research firm, J.D. Power. Welcome to the program, Mr. Dilts.

Mr. GARY DILTS (Senior Vice President, Global Automotives, J.D. Power): Yeah. Hi, Robert. Nice to hear from you.

SIEGEL: $1 billion at $3,500-$4,500 per sale assumes something around 250,000 car sales. Mr. Dilts, how does that number compare with what the car companies were doing, or what they might have been doing, in the month of July without the Cash-for-Clunkers program?

Mr. DILTS: You know, in terms of incrementality, we're again having a look at how much of that was really back-loaded business that found its way, you know, when this program was announced. We think of the 250,000 - about 40,000 of it's probably topside business. We're also not certain how much halo business may be coming into the market, you know, from people that are just curiously looking.

SIEGEL: Halo business?

Mr. DILTS: Yeah, right, halo business. In other words, people that are curiously coming in to find out if this program apply to them. They end up in a showroom. The find some - a vehicle they like and they end up driving home in it, even without the help of the government.

SIEGEL: Could even be an inefficient fuel vehicle but they're are on the lots that they buy the car there.

Mr. DILTS: It's - a lot of good product out there, and a lot of people haven't seen it for a long time.

SIEGEL: So you think about 40,000 sales for the month might be attributable to Cash-for-Clunkers?

Mr. DILTS: Well, in terms of incrementality, yeah. We think the billing obviously is going to be around 250,000. We think of that about 40,000 units -probably going to be, you know, business that the auto industry would not have seen this year.

SIEGEL: And to put that in the context of the entire car market, nowadays, we figure it's running at about 10 million new vehicles sales retail per year.

Mr. DILTS: Yeah. We look at the 2009 model year at about 10 million units. Again, that's down from 12.6 million prior year.

SIEGEL: We would expect to see, even at the level of 10 million which is not great, 700,000 new car sales, 800,000 per month, something like that.

Mr. DILTS: Yeah. It doesn't quite work that way. The seasonality, it doesn't work that way. But I mean it's going to be close to a million-unit-car month here in July. It's the way we expect it to shake out which will be a little bit less, about a 100,000 units less than it was last year in July.

SIEGEL: So in a word, I mean the Cash-for-Clunkers by your standards, a success or not such a big deal?

Mr. DILTS: You know, I'd give it an A for initiative. I think the execution of it, they're going to have to put these kind of - this program on a calendar rather than on a checkbook basis, so that the market knows when the program begins and when it ends, so that they can execute more efficiently against it.

SIEGEL: What does that mean exactly? You're saying that if people don't know exactly when the program is in effect or how long the money will last, then it's more difficult to sell cars to people and…

Mr. DILTS: Well, you could probably - this is the end of the month and you have 20,000 car dealers out there today with contracts that they're not certain whether there's money behind this Clunker program or not. So how do you finish your transaction with a customer if you're not certain that the government checkbook is still standing behind you? You got a $4,500 commitment. Do you make it or not?

SIEGEL: Let's say, I'm a car dealer and there is no Cash-for-Clunker program. How good a trade-in offer can I make and still hope to make money on the new car sale?

Mr. DILTS: Well, I mean, if they're driving into the dealership, it's already got some significant value if it's, you know, functioning, so we - it's a couple of $3,000 at the worst that a dealer can put on a trade here. And again, that's the way they did the math to calculate the value here of 3,500 to 4,500 on the incentives.

SIEGEL: They're setting that value beyond the range of what a dealer could typically offer somebody for a car that's still running.

Mr. DILTS: Yeah. They have to or otherwise there's no incremental value. You're no lift to the consumer. So it's got to be, on average, a little better than what they can get in the way of a trade.

SIEGEL: Do you think that programs like this can actually change people's tastes in what kind of cars they're going to buy, or just bring out the people who are more interested in fuel-efficient cars and get them to the dealership more quickly than it'll get people…

Mr. DILTS: You know, both. I think it brought some curiosity for sure. The shopping over the last couple of weekends has been pretty aggressive, and for sure it's got people looking at MPG as part of the equation, not just price. So I think it's good for the industry and certainly good for the environment to be heading in this direction.

SIEGEL: Mr. Dilts thanks a lot for talking with us.

Mr. DILTS: Thank you.

SIEGEL: That's Gary Dilts, Senior Vice President of Global Automotives at J.D. Power, the market research firm. He spoke to us from Detroit.

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