Cash for Clunkers throws some into reverse

Alex Johnson Reporter • Profile

People keep coming into Sam Ackerman’s car dealership and asking him about the deals under the federal Cash for Clunkers program.

Which normally wouldn’t be a problem, especially after the government last week tripled funds for the program, which offers rebates up to $4,500 for drivers who turn in certain old gas guzzlers and buy a new ride.

Except that Ackerman is sales manager at the Pre-Owned Department at D&E Dodge in Wilmington, N.C. That means he sells used cars.

“Probably 1 out of 3 customers that pull in the lot are asking about it,” he said, but he has no rebates to offer. Only his competitors who sell new vehicles can make a Cash for Clunkers deal.

“Yeah, it’s an unfair advantage they do have,” Ackerman said.

Cash for Clunkers is rolling on after President Barack Obama signed a $2 billion extension for the program last week, and new car dealers say buyers are continuing to flock in for the deals. But at the other end of the market, companies and organizations whose business models are built on used vehicles say they’re hurting badly as Americans who might have come to their doors suddenly find themselves better placed to afford a shiny new car.

It isn’t just dealers, who say their customers are disappearing. It’s also auto parts businesses, which fear that the cost of used parts could skyrocket as clunkers are destroyed rather than sold for parts. And it’s charities, many of which depend on donated cars to raise cash at auctions.

Reduced inventory translates into higher prices
For every new vehicle sold under the federal rebate scheme, which began July 24, a used one is turned in. It can’t be resold, because its engine must be destroyed to make sure it doesn’t keep polluting the air.

Interactive 10 most traded-in clunkers A list of the 10 most traded-in clunkers and 10 most-purchased vehicles by model.

Before Cash for Clunkers, Jerry Frazier, owner of Save-A-Lot Motors in Cairo, Ga., bought most of his cars from local new car dealers, but “the cars I normally buy they are now crushing, so my source of cars is drying up.”

“I think it’s the worst thing we’ve ever done,” he said.

Kelley Blue Book projected last week that the newly expanded Cash for Clunkers plan would take at least 750,000 used autos out of the marketplace — a nearly 5 percent contraction in supply based on 2008 inventories.

That’s enough to have “an immense impact,” inflating used car prices and leaving lower-income buyers behind, said Alec Gutierrez, KBB’s senior analyst of vehicle valuation.

With economists projecting inflation of as much as 15 percent in used car prices, dealers say they’re already feeling the impact.

An msnbc.com-NBC News special report Alex Johnson is a reporter for msnbc.com. The following NBC stations contributed to this report: KARE of Minneapolis, Minn.; KGW of Portland, Ore.; KING of Seattle; KNDU of Kennewick, Wash.; KNVN of Chico, Calif.; KSDK of St. Louis; KUSA of Denver; WALB of Albany, Ga.; WEEK of Peoria, Ill.; WGEM of Quincy, Ill.; and WSAZ of Huntington, W.Va.

Eric Moore, president of Excalibur Auto Group in Kennewick, Wash., said he was seeing sharply reduced inventories at auctions where dealers buy entire lots of used cars.

“The prices at auctions are tremendously higher,” Moore said.

And “if we have to pay more for the used cars,” said Bob Kiassat, owner of Chico Top Imports in Chico, Calif., then “we have to pass it to the customer.”

When Jeff Carlson, owner of Warehouse Auto in Waterloo, Iowa, heard about the program, “my first thought was, what in the heck is the government doing here?” he said.

“There’s folks out there that that is their price range — that used vehicle that’s in that $3,000, $4,000, $5,000 price range,” he said. “All of a sudden, they’re out of the marketplace.”

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