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Tuesday, August 25, 2009

Auto Industry Braces For Hangover After The 'Clunker' Party

As the U.S. government's popular "Cash for Clunkers" program shut down officially at 8 p.m. Monday, it left behind mounds of paperwork and empty lots at dealerships across the country.

Over the weekend, an onslaught of customers descended on dealerships, hoping to take advantage of the offer, which allowed consumers to trade in their gas guzzlers for a voucher worth up to $4,500 toward a new vehicle.

In back offices, accountants and other dealership workers sat at their computers until the wee hours of Sunday morning, uploading their applications to the government's Web site.

The online system was slow and crashed several times, forcing transportation officials to extend the deadline until noon Tuesday for dealers to submit their paperwork.

Auto Nation, the country's biggest car dealership chain, stopped accepting clunker program trade-ins over the weekend because it was concerned about getting in all of the paperwork on the more than 12,000 deals it did.

The company processed 1,600 sales on Friday night alone, and employees worked in shifts at offices in Dallas throughout the weekend.

"This is the jump-start to a gradual recovery," said Marc Cannon, a spokesman for AutoNation.
Transportation officials said 625,000 transactions, worth $2.58 billion, had been submitted as of Monday morning.

The Obama administration declared the program a success. An estimate issued Monday by the White House Council of Economic Advisers said the program is projected to boost U.S. third-quarter gross domestic product by 0.3 to 0.4 percentage points and create 42,000 jobs by the end of 2009.

Many auto industry analysts and dealers expect sales volumes to fall now that the program is over. They worry that many people who took advantage of the program were merely accelerating purchases they would have made later in the year.

If that's true, the premature sales could hurt automakers, which increased production in the third quarter to replenish clunker-depleted inventories that had already grown low because of factory shutdowns over the summer.

Because there's a lag time between production and getting a vehicle to a dealership, the new vehicles "will hit when there's a lower demand," said Jeff Schuster, executive director of forecasting at the auto industry research firm J.D. Power and associates.

"There might not be as many people to buy because they bought during the clunker program," he said. "And if at the same time there's less of an incentive program from carmakers, you could have fewer people buying. That could stall the recovery we're in."

Jeremy Anwyl, chief executive of, another automotive research group, agreed.
" 'Cash for Clunkers' created a nice little blip," he said.

"We'll look back and say, 'Nice party, but the hangover is awful.' "

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