Some have braved the marketplace, often without clunkers

July 28, 2:26 PMIndianapolis Buying a Car ExaminerJoe Thomas

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Some hearty souls have ventured back into the automotive marketplace but only the heartiest souls have actually bought a new car, according to July sales statistics from J.D. Power and Associates.

And the federal Car Allowance Rebate System, also known as CARS or the Cash for Clunkers program, has not lured many from the couch to the car lot.

For now, dealers have to content themselves with the fact that the good news is the bad news is not as bad as it has been.

J.D. Power estimates July sales will come in at 780,500 units, a four-percent drop from June and a nearly 20 percent drop from last year. But surely those numbers will improve as Americans rush to get rid of their gas guzzlers (that are less than 25 years old) by taking advantage of up to $4,500 in rebates from the federal government. On top of that, they will save money every time they stop at the pump to fill up their more fuel efficient new car, right?

"Retail sales for 2009 are expected to be only incrementally affected by the Cash for Clunkers program, as many consumers don't understand the specifics of the program, and if they do, they often find they don't qualify for the incentive," said Gary Dilts, J.D. Power’s senior vice president of global automotive operations. "However, there is potential for increased sales in the short term as a result of select OEMs boosting incentives to match the program."

So far in July, the Cash for Clunkers program appears to affect segment mix, particularly as gas prices pull back from June increases. Retail market share for compact vehicles has increased 2.5 percent from June, to 39 percent. The shares for midsize and large vehicles have decreased, with the exception of large pickups, which are up by 0.5 percentage point. J.D. Powers analysts attribute this increase to improved fuel economy from today's pickups, compared with those being traded in.

J.D. Power and Associates maintains its forecasts for 2009 at 8.3 million units for retail sales and 10.0 million units for total sales. The current sales trend suggests the likelihood of a flattened recovery in 2009’s second half.

"Given a sputtering but improving economy, the Cash for Clunkers program and manufacturer incentives, it appears that consumers are taking a wait-and-see approach," said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates. "Favorable responses from consumers to these factors will be critical to market recovery in the second half of 2009."
Some try to put on a brave face, though. Chip Perry, AutoTrader.com’s president and CEO, said the program has gotten off to a good start. He said 70 percent of visitors to his company’s Web site know about the program and 19 percent want to participate.

"That so many people are aware of the CARS program and that almost 20% of those who know about CARS are going to try and participate is a testament to the great work the government and the auto industry have done to inform consumers about this new-car purchase incentive," Perry said. "Awareness and interest in participating is important if the program is to meet the goals of quickly spurring purchases of new, fuel-efficient cars, which will have positive economic and environmental benefits."

Perry also said that 19 percent is a larger group than first appears.

"In any given year, about 75% of the cars purchased are used and about 25% are new, and this program is only applicable to new-car purchases. So the fact that 19% of our site visitors who know about the program say they are likely to take advantage of the it and another 19% are still not sure means this program has clearly made an impact among new-car shoppers and may cause some used-car shoppers to consider buying a new car to get the incentive."

Others warn not to consider the program an easy route to a new car. Remember, rebate or not, buying a new car is a long-term commitment that, for most of us, comes with monthly payments.

Americans Well-informed on Auto Retailing Economics (AWARE) reaches out consumers who plan to use the Cash for Clunkers program. AWARE officials emphasize the importance of wise purchasing and financing decisions.

"Those consumers who plan to use the CARS program will get the most out of their vehicle financing experience if they do their homework," says Eric Hoffman, spokesman for AWARE, a coalition of companies and associations whose Web site, www.autofinancing101.org, helps consumers better understand auto financing.

Here is your AWARE homework:

• Set a budget based upon your needs and financial situation. If you need help, use the Auto Finance Calculator at www.autofinancing101.org.
• Determine if you quality for the Car Allowance Rebate System (CARS) program. Visit www.cars.gov for current information about the program and its criteria for participation. If you qualify, you will be required to provide documentation.
• Compare annual percentage rates and other financing terms from multiple lending sources.
• Learn the language and make sure you are familiar with common terms you're likely to hear or read in the course of purchasing or financing a vehicle, including APR, down payment, fixed and variable-rate financing and on- and off-site financing. Many of these terms can be found at www.AutoFinancing101.org/resources/glossary.asp.

While shopping for an auto:

• Stay within the price range that you can afford.
• Negotiate your finance arrangements and terms.
• Understand the value and price of optional products such as extended service contracts, credit insurance, or guaranteed auto protection. If you do not want these products, do not sign up for them.
• Read the contract carefully before signing it.