Independent Used Car Dealers Being Squeezed by Cash for Clunkers

According to some estimates, 60 percent of cars traded in through the cash for clunkers program would otherwise have ended up on a used car dealer’s lot. As mandated by the federal government, these cars are destroyed instead of being resold by the dealer or at auction.

Although the clunkers program has been a boon for new car dealers, small, independent used car dealers around the country are struggling.

Columbus Fair Auto Auction COE Keith Whann says that approximately 40 million used cars are sold each year, and about 30 percent of them are sold by independent dealers.

Whann says that these independent used car dealers typically sell 20 to 25 cars and trucks per month from inventories of between 40 to 45 vehicles. He says that the majority of these Mom and Pop dealerships have fewer than six employees.

According to Whann, when a vehicle is traded and destroyed in return for a Cash for Clunkers voucher, it means one less vehicle that might have found its way to an independent dealer’s lot.

One such independent dealer feeling the effects of the Cash for Clunkers program is Chase Motors, located in suburban Richmond, Virginia. Chase Motors’ finance manager James Dameron says, “We’re struggling and a lot of us small guys are going out of business.” Sales for the dealership are down by about 30 percent.

Even before Congress and the Administration launched the Cash for Clunkers program, many independent used car dealerships were suffering. Volatility in gas prices and the economic downturn were causing consumers to hold onto their old cars longer and driving up prices at auto auctions.

Under the Clunkers program, used cars and trucks that delivered fuel efficiencies of less than 18 mpg when they were new qualify for federal vouchers of up to $4,500. New car dealerships are required by law to destroy the engines and drivetrains of trade in autos by replacing the engine oil with a solution of liquid glass, then idling the engine until it seizes. Once the engine components have been rendered unusable, the vehicles are then crushed by auto salvagers.

Whann says that 60 percent of the vehicles being scrapped through the Clunkers program are mechanically sound and could have been resold for more than the $4,500 voucher amount. Assuming the estimates that 750,000 vehicles will be traded through the Clunkers program, he says that translates to 450,000 autos taken from the used car and truck market.

Used vehicles that do find their way onto dealer lots are selling for much higher prices due to dwindling inventories. Greg Signore, owner of Elm Auto Sales in Kearny, New Jersey says, “The guy looking for a cheap used car is having a hard time now.” He says the basic laws of supply and demand created by the federal CARS program, “is absolutely increasing the cost of the clunkers left on the market.”

Mike Salarze, manager of Majestic Motors in Baltimore, Maryland, reports that the dealership is seeing fewer customers looking for low-cost, basic transportation. Salarze wonders, “What about all these people who need the $3,500 cars? Are they going to ride the bus for the rest of their lives?”

The latest government figures state that nearly 350,000 vehicles have been scrapped since the Cash for Clunkers program was launched in July.

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