People aren’t buying vehicles right now. At least not as much as they were before the COVID-19 pandemic. New car inventory is getting thin for many dealerships as shoppers have taken advantage of aggressive incentives.
With many states just starting up production again, shoppers may need to turn to used car inventory until more new cars become available.
J.D. Power stated 1,345,784 used vehicles were sold at franchised dealers from March 2nd until May 3rd. Those results represent a 35% drop in used car sales (712,770 units) from initial estimates before the shut-down.
That said, what if the economy continues to go sideways or even further downward? Could this bring about another version of the Car Allowance Rebate System (C.A.R.S), or Cash for Clunkers, as it’s better known?
Speculation about a possible Cash for Clunkers 2 program is growing because the COVID-19 pandemic is negatively affecting vehicle sales as dealerships try to rebuild.
To make matters worse, many automotive shoppers are staying at home due to lost jobs, lower-income and lingering health concerns.
The economic conditions of today’s crisis inevitably creates comparisons to the 2007-2009 Financial Crisis, where automotive manufacturers required multi-billion-dollar bailouts and other government assistance to avoid filing for bankruptcy.
With those comparisons in mind, is it possible that another Cash for Clunkers program is on the way? That’s what we’ll examine.
What was Cash for Clunkers?
The original Cash for Clunkers program was a 2009 U.S. Federal Government program that provided financial incentives to car owners to trade-in older, less fuel-efficient vehicles for newer, more fuel-efficient ones.
However, the effectiveness of the program’s impact on job creation and carbon emission reduction are two aspects of the program that are still contended.
Will Cash for Clunkers 2 Be Needed?
The automotive industry is facing several major problems right now. Those include:
Steep declines in new car sales
Low new vehicle inventory levels
Used vehicle inventory aging issues
High new & used car loan delinquencies
All of these issues are caused or aggravated by a short-term supply and demand imbalance. These issues largely stem from mandatory shelter-in-place orders and lingering consumer health concerns due to the COVID-19 pandemic.
While dealerships may buy trade-in vehicles at lower prices, sellers may not get the prices they originally expected because the wholesale value of used vehicles dropped. This factor might prevent customers from selling their vehicles to dealerships.
Dealerships should still market their trade-in program to make it easier for customers to sell their vehicles.
For example, dealerships can make sure their website’s trade-in tool is easy-to-find and user-friendly. Dealerships can also add, or update, an FAQ website section with commonly asked customer trade-in questions. Dealerships should create explainer videos that help customers understand how the new trade-in process works and what to expect.
Customers always have questions about this process, which makes this a great opportunity to evaluate your content, processes and supporting marketing efforts.
In addition, because automotive auctions are closed for the time being, it’s important for dealerships to find alternative methods to stock their used vehicle inventory at low costs.
However, there are signs that low consumer demand will drag on due to job losses.
Should low consumer demand continue, dealerships could get stuck with higher amounts of used vehicles on the lot that aren’t selling.
Thus, used vehicle aging will remain a problem by challenging dealerships to move more vehicles off the lot within the first 30 days — where the highest gross is typically generated.
If dealerships don’t move their aged inventory off the lot, they risk additional losses and floor plan expenses. Used car managers should consider all options for marketing their inventory.
Merchandise all vehicles 100%
Include monthly finance payments
Include market savings
Make it easy for shoppers to find current offers
Distribute offers on social media and email marketing campaigns
All that said, it’s clear that the automotive industry is struggling with a number of issues. But, the question is whether or not these issues will become severe enough to attract the support of enough lawmakers and automotive industry leaders.
Without wide-ranging support and agreement, it would be difficult for a Cash for Clunkers 2 program to get off the ground.
Would Cash for Clunkers 2 benefit dealerships?
In theory, Cash for Clunkers 2 would benefit dealerships directly by jumpstarting automotive sales. The program would do this by enticing people to purchase a vehicle at a time when they wouldn’t normally be interested in buying one.
The original Cash for Clunkers program accomplished this through financial incentives to help persuade vehicle owners to trade-in their older, less fuel-efficient vehicles for newer, more fuel-efficient ones.
A Cash for Clunkers 2 program could also potentially create more jobs. However, the original program’s effectiveness in this area is still debated. This makes it uncertain whether a Cash for Clunkers 2 program could have a greater impact on job creation than its predecessor.
Cash for Clunkers 2 would likely increase that amount to $10 billion to stimulate $50 billion in purchases, in comparison.
Jonas expects this program to last roughly 6 months — starting in the fall of 2020 and concluding sometime in early 2021.
Though the new program would be larger in scope, it would likely share much in common with its predecessor.
Customers would still get a coupon up to a certain amount to scrap an older vehicle and purchase a newer vehicle model using that coupon.
There would also be a sustainability, fuel-economic and safety aspect to the program. Customers would likely be incentivized to purchase fuel-efficient vehicles with more safety features than the older vehicles they trade-in.
Will Cash for Clunkers 2 happen?
With the exception of Ford, most industry executives are taking a wait-and-see approach towards a potential Cash for Clunkers 2 program.
Jonas argues a government intervention in the form of a stimulus program like Cash for Clunkers 2 would help the automotive industry sell more cars than if no stimulus program were put in place.
All that said, it’s important to note that no negotiations between automotive executives and government officials have yet taken place.
While industry discussions about a possible Cash for Clunkers 2 are ramping up, formal discussions between industry executives and lawmakers must happen first before a second Cash for Clunkers program can gain any real traction.
As more information on this subject becomes available, we’ll update this article. Check back later for more information!
In the meantime, check out our 2020 Automotive Success Playbook. Learn our top tactics, strategies & recommendations to help dealerships rebuild sales and increase leads in today’s market. The playbook includes easy-to-use checklists to help audit your dealership’s digital marketing efforts.