A Retrospect on Cash for Clunkers Program

Cash for Clunkers took more than 700,000 used cars out of circulation offering up to $4,500 for a clunker, and this federal program gave consumers an incentive to turn in their old cars and trucks to buy more fuel-efficient new models.

But the Cash for Clunkers program, a boon to new car dealers, had somewhat of a different effect on used car businesses. Those trade-ins were scrapped, not sold, which resulted in fewer vehicles for dealers to bid on at auctions.  Because there were fewer vehicles on which to bid, wholesale prices for used cars dramatically increased overnight.  With the heightened demand on new cars as a result of the inflated trade-in values for gas guzzlers, used car dealers were not able to increase the retail price of their vehicles to make up for their increased costs at the auctions.

The results were that independent dealers were selling fewer cars and making less profit on every car they sold.  According to the National Independent Automobile Dealers Association (NIADA) there were 35.5 million used vehicles sold in the U.S. in 2009, down from 36.5 million in 2008.

It appeared that used car dealers were facing a grim future but reports for 2010 tell a different story.  Auto Nation, a national new and used car retailer, reported a 23% increase in used car revenue during the first three months of 2010 and had better results during the second quarter in which they reported their used vehicle revenue increased by 25%.  Even though many dealers are still scrambling to find vehicles, they are finding that without the incentive to buy new, consumers are turning to used vehicles.  Furthermore the retail values of used cars have been increasing again as many consumers consider them to be a bargain compared to buying new.  It appears that regardless of the initial impact the 2009 Cash for Clunkers program had on used dealers, it's turning out to be a good 2010.