Foreign Automakers Benefited Most from Cash for Clunkers Program

Although the Cash for Clunkers program benefitted Detroit’s Big Three, the real winners appear to be foreign automakers.

The program’s critics warned that by not restricting purchases to domestic autos, American taxpayers would, in effect, be bailing out foreign car makers and, based on the federal government’s own data, this appears to have been the net result.

Although the margin is small, new car buyers who participated in the Cash for Clunkers program tended to spend their federal vouchers on imported cars instead of choosing qualifying domestic models.

According to J.D. Power and Associates, domestic vehicles account for approximately 47% of all cars and trucks sole in the U.S. but that number dropped to 38.5% while the Cash for Clunkers program was in effect.

Despite domestic automakers aggressive attempts to prove otherwise, American car buyers still perceive foreign autos, including Honda, Toyota and Hyundai, as being more affordable and more fuel-efficient.

Despite the foreign nameplates, the U.S. Department of Transportation recently stated that approximately 52% of new vehicles being purchased through the Cash for Clunkers program were actually manufactured in America. J.D. Power and Associates claims that roughly 63% of cars and trucks sold in America are manufactured here.

Domestic car makers still saw a significant increase in sales, even if foreign auto sales accounted for a slightly larger percentage of the Cash for Clunkers deals. Both Ford (which ranked in the top three beneficiaries of the program) and GM have ramped up production, and Chrysler claims to be operating at peak production levels as well.

J.D. Power and Associates analyst, Jeff Schuster, claims that the shift toward foreign autos reflects the negative attitudes some American car buyers have toward domestic automakers as the result of the recent bankruptcies and factory shutdowns.

Sales of domestic autos during the first half of this year had already dropped to 45% of all vehicles sold. That represents a 3% drop from the same period in 2008.

President of the Society of Automotive Analysts, Tom Libby, says that new car buyer who participated in the federal Cash for Clunkers program were primarily concerned with maximizing fuel efficiency. He claims that this drove many consumers to buy imports since foreign automakers offer more choices of small cars. “You look at the product portfolios,” he says, “and it explains it completely.”

Domestic automakers, however, outperformed their foreign competitors in the sale of trucks under the Cash for Clunkers program. Under the program, fuel-efficiency requirements for trucks were less stringent than those placed on other vehicles.

Although there were a number of new trucks that qualified for federal vouchers under the program, relatively few were sold. Libby claims that most participants in the program didn’t understand the rules well enough. “The general impression is that the program is designed to sell more fuel-efficient vehicles,” he said, “So the buyer who is in the market or a larger vehicle is probably dismissing the program.”

GM spokesman, John McDonald, has a different perspective on the results of the program. According to McDonald, one reason Toyota outsold GM is that GM’s dealers ran out of inventory.

McDonald is quick to point out that in the initial days of the Cash for Clunkers program; GM sales were keeping pace with other automakers and maintaining their market share. He says that GM, like the other domestic automakers, had “historically low” inventories at the beginning of the program.

He does concede, however that the lower prices offered by foreign automakers also accounted for their higher sales volumes.

Jeff Schuster agrees with McDonald’s assertion concerning competitive pricing. “Things do tend to skew toward the imports if you’re looking at how low you can get the vehicle’s price down to,” he says.

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