Last week I was amused by the headlines blaming, the “Cash for Clunkers” also known as Cash Allowance Rebate System(CARS), for the miserable automobile sales in the month of September.
The ubiquitous statement of the week in both print and electronic media was that offered by Reuters contributors Kevin Krolicki and David Bailey, U.S. auto sales tumbled by 23 percent in September as showrooms emptied after the government-funded boom from the “cash for clunkers” program, with General Motors Co and Chrysler hardest-hit.
Edmunds.com reports “September’s light-vehicle sales rate will fall to 8.8 million units . . . the lowest rate in nearly 28 years, tying the worst demand on record. After the cash-for-clunkers program boosted August sales to their first year-over-year increase since October 2007, demand has plunged. In at least the last 33 years, the U.S. seasonally adjusted annual rate has only dropped as low as 8.8 million units once — in December 1981 — with records stretching back to January 1976.”
The implication being that “Cash for Clunkers” was responsible for the huge increase in vehicle sales in August and the resulting crash in September.
While CARS had a significant impact on August auto sales, it was hardly the only factor. Talk to any car salesperson that has been in the business for over five years. Talk to anyone involved on the production end of an auto finance company or bank and the rest of the story becomes clear.
Every year with few exceptions, auto dealerships sell more passenger vehicles and light trucks in the month of August than in the month of September. The well established pattern of auto sales in the months of August and September for the years 2006-09 is illustrated in the linked chart below.
http://www.box.net/shared/2k2bef71d1
The reasons for the yearly drop off in September auto sales are a common topic of conversation within the industry, but are rarely discussed outside.
The most obvious answer is August has more working days than September does by the simple fact August has 31 days in the month vs. September’s 30 days.
Historically the auto manufacturers have delivered the new models to the dealerships after summer has concluded. The auto buyer looking for the release of next years model or wants to be the first one on the block with the latest model waits until the end of September or the beginning of October to make the purchase, helping to contribute towards the first three weeks in September being a slow time at the dealerships.
Lastly, August is prime vacation time when families want to make the end of summer memorable with the purchase of a new vehicle. As September rolls around the focus is on getting the kids settled in school, beginning the next project at work, or sampling the latest fall fashions at the department store, taking time and attention away from the auto market.
Yes, “Cash for Clunkers” did affect September’s slow down in auto sales, by absorbing pent up demand and reducing the available inventory at the auto dealers, but the cyclical variations in the market played their part in the reduction of sales as they do every year.
Blaming “Cash for Clunkers” as the sole reason for the slow down in auto sales is to ignore the market factors that auto sales professionals and their financing partners allocate as a regular part of business.
Jeff Hubbell worked for a major auto lender for 13 years.
Data in sales chart from Autoblog.com, Edmunds.com, Wardsauto.com
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