Auto Inventories Depleted by U.S. ‘Cash for Clunkers’ Discounts

By Angela Greiling Keane and Craig Trudell

Aug. 7 (Bloomberg) -- Auto shoppers may not find their preferred colors or accessories when they visit U.S. showrooms this weekend as the government’s “cash for clunkers” program depletes inventories.

Automakers may need four to six weeks to rebuild supplies, said John McEleney, chairman of the National Automobile Dealers Association. General Motors Corp. and Chrysler Group LLC dealers may be most affected because those companies slashed production as they went through bankruptcy, he said.

“With this quick spike in sales, it has wiped out a lot of inventory,” McEleney, who owns dealerships in Iowa City and Clinton, Iowa, said in an interview yesterday. “The selection won’t be quite as great.”

Cash for clunkers offers credits of as much as $4,500 for the purchase of a new, more fuel-efficient vehicle when buyers turn in an older one to be junked. The Transportation Department had received 184,304 dealer applications for funds totaling $775 million through Aug. 5, with more requests in the pipeline.

The program, kicked off by Transportation Secretary Ray LaHood on July 25, has probably run through its initial $1 billion, McEleney said.

The U.S. Senate gave final approval yesterday to an infusion of $2 billion that LaHood has said would keep the program running through the end of the month. President Barack Obama has indicated he will sign the measure into law.

Clearing Lots

The discounts are helping dealers clear their lots of 2009 vehicles as automakers ramp up production for the 2010 model year, said Gary Dilts, senior vice president at Westlake Village, California-based research firm J.D. Power & Associates.

“You’ve got to purge the system to really get it right,” Dilts said. “Getting down to the bottom of inventories like this is a very healthy thing for the industry at this time of year.”

Neale Kuperman, owner of a Toyota Motor Corp. dealership in Blauvelt, New York, said he usually keeps at least 75 Corollas, 20 RAV-4s, and 10 Priuses on the lot. The store was down to 10 Corollas and two RAV-4s and lacked a single Prius yesterday.

“We have seven-and-a-half acres here, and you could play a game of touch football right now and not run into a car,” Kuperman said. “We’re absolutely depleted on models.”

The program has invigorated sales, Jessica Caldwell, director of industry analysis for Edmunds.com in Santa Monica, California, said in a report yesterday. “Of course, this level of activity will not continue, as it reflects the behavior of those anxious and able to participate in the program -- and that is a limited set of people,” she said.

Ford Prices Rise

Ford Motor Co., the only U.S. automaker to avoid bankruptcy, credited lower inventory for a $2,000 rise in prices on each vehicle sold in the second quarter compared with a year earlier.

“Having inventories under control means there’s not a push to move the metal,” Chief Financial Officer Lewis Booth told reporters Aug. 5 at a conference in Traverse City, Michigan. “We’ve all lived with too many stocks and it’s a lousy way to run a business.”

Ford posted its first monthly sales gain since 2007 in July.

General Motors and Chrysler have lower inventories than Ford because they cut production further. Chrysler closed all of its assembly plants when it filed for bankruptcy April 30, and kept some of them closed until July, after emerging in June.

GM said on April 23 that it would temporarily stop production at 13 U.S. assembly plants for several weeks to trim inventory after sales dropped in this year’s first three months. GM filed for bankruptcy on June 1 and exited on July 10.

Used-Car Lots

The clunkers program is protecting dealers’ used-car lots because of the requirement that vehicles traded in be scrapped, not sold, said Paul Taylor, chief economist of the dealers association, based in McLean, Virginia.

“It will help used-car values,” Taylor said. “These don’t put used cars in the marketplace.”

Used-car sales may have gotten a boost from the program because consumers who don’t qualify for the government discount buy a previously owned vehicle instead, said Robert Sacks, spokesman for Lithia Motors Inc., a Medford, Oregon, company that operates 88 dealerships.

‘Great Deals’

“It’s a big side benefit,” Sacks said in an interview. “You have a lot of people who are now suddenly becoming aware there are some great deals out there.”

The dealer association’s McEleney said he isn’t sure whether the additional $2 billion would last through the month.

“I would expect the pace will slow down a little bit because you’ve had the early adopters and a lot of people that wanted to move fast,” he said.

After adding contractors to process the submissions, the agency has worked through a bottleneck of applications and caught up, said Rae Tyson, spokesman for the National Highway Traffic Safety Administration, which administers the program, in an interview.

“Everything seems to be flowing very nicely right now,” he said yesterday. The computerized system, set up by Oracle Corp., can now process as many as 30,000 transactions simultaneously, up from 12,000 when the program began, Tyson said.

To contact the reporters on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net; Craig Trudell in Southfield, Michigan at ctrudell@bloomberg.net