What isn't as obvious is that even the strong market in used cars and trucks may depend on a rebound in sales of new cars.
Kristi Hart, assistant vice president of underwriting at Midwest America Federal Credit Union, said that without a boost in new-car sales soon, the used-car market is going to suffer a few years from now, when today's new cars would be hitting the used-car lots.
Hart saw the market in new cars and trucks practically collapse last fall and this year. But she works with hundreds of car dealers in the area, and she's seen that used-car sales have taken a much smaller hit in this area - perhaps 10 percent to 15 percent lower sales, compared with a year ago.
The latest form of the “cash for clunkers” is a compromise announced earlier this month by the House Energy and Commerce Committee. Under this plan, the federal government would provide buyers with vouchers worth $3,500 or $4,500 off the price of a new vehicle. But there are likely to be many conditions that buyers would have to meet to qualify. Most important: The new vehicle has to get significantly better mileage than the trade-in.
At the national level, Michelle Krebs has seen a tremendous shift of buyers from the new-car to the used-car market. Krebs, senior editor of Edmunds' AutoObserver.com, said, “We support a broad-based program that will get car sales going.” Analysts at Edmunds track the car business closely.
In the last year, she said, “We have seen a trend where buyers are being very value-conscious.”
Even when auto manufacturers are offering sales incentives that amount to 10 percent, 20 percent or more of a car's sticker price, the difference isn't enough to dissuade many newly debt-averse motorists from choosing used cars. Although Krebs said the market overall is down, certified used-car sales have risen in the last year. Certified used cars are usually late models that pass rigorous inspection and are backed by better warranties than most used cars.
In general, the “cash for clunkers” plans have set a target of subsidizing a million vehicle sales at a cost of roughly $4 billion. Krebs says Edmunds analysts believe deferred demand for new cars could support many more than a million vouchers - perhaps 2 million to 3 million, she said.
Krebs also recognizes the danger of a bottleneck in the supply of used cars if new-car sales don't increase. The risk is even greater because sales of rental and fleet vehicles - important sources of late-model used cars - have fallen off sharply, Krebs said.
Jason Kennedy, general manager of Bart's Car Store, 5510 Illinois Road, said the local market in used cars shifts very quickly in response to economic news and gas prices. Last summer, as gas hit $4 a gallon, “the truck and SUV prices just bottomed out,” Kennedy said. But as gasoline dropped below $2 per gallon, “the market adjusted just as quickly.”
Kennedy is skeptical about any effort to push American motorists into smaller vehicles. He's confident a strong market for used cars will continue.
Even as gasoline prices have crept back above $2 per gallon, he sees used-vehicle sales reflecting what he thinks are fundamental tastes of motorists here.
“Fewer gas-savers, and more big vehicles,” Kennedy said of sales. “Most of us just don't want to drive those little gas-savers. They frankly aren't selling at the rate of the others.”
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‘Clunkers' plan
Under the latest version of a “cash for clunkers” program circulating in Congress, consumers could qualify for credits of $3,500 or $4,500 if they trade in low-mpg vehicles for more fuel-efficient ones. Many details have not been worked out yet, but the program likely would include requirements that trade-ins be scrapped, that they are running when they're traded in and that vouchers could be issued only to those who have been the registered owners of the trade-ins for a year or more.
Passenger cars
The old vehicle must get less than 18 mpg. New passenger cars with mileage of at least 22 mpg are eligible for vouchers. If the mileage of the new car is at least 4 mpg higher than the old vehicle, the voucher would be worth $3,500. If the mileage is at least 10 mpg higher, the voucher would be worth $4,500.
Light-duty trucks
The old vehicle must get 18 mpg or less. New light trucks or SUVs with mileage of at least 18 mpg are eligible for vouchers. If the mileage of the new truck or SUV is at least 2 mpg higher than the old truck, the voucher would be worth $3,500. If the mileage is at least 5 mpg higher, the voucher would be worth $4,500.
Unless modified, this might do little to boost sales of full-size pickups, such as those manufactured at Fort Wayne's General Motors plant. Depending on how mpg of models is determined, very few full-size pickups sold in the U.S. would qualify.
Other vehicles
The latest version of the legislation being debated would include incentives for trade-ins on larger trucks - those weighing from 6,000 to 10,000 pounds.
