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Home > Car Makers News > Other > Clunkers' ripple effect creates winners, losers | detnews.com | The Detroit News


Clunkers' ripple effect creates winners, losers | detnews.com | The Detroit News


"Cash for clunkers" gave the struggling auto business a big lift in August, but the federal rebate program touched many other industries as well -- helping some and hurting others.

Consumers who traded in gas-guzzlers for more fuel-efficient models got as much as $4,500 cash back, leading to the first year-over-year gain in monthly auto sales in nearly two years. The impact of the program, which ended Aug. 24 when government funding ran out, continues to be felt across other parts of the economy.

Scrap yards have been busier, but auto repair shops are expected to suffer with more new cars on the road. Restaurants and shops are hopping near auto factories cranking out vehicles to replenish inventories, while other retailers are losing out on shopper dollars that went for down payments. The program also dealt a blow to the used car market, and to charities that depend on auto donations.

"Cash for clunkers did a terrific job for the auto industry but put some stress on the rest of retail," said Marshal Cohen, chief retail industry analyst at market researcher NPD Group in Port Washington, N.Y. "Where's the cash for clothes? Where's the cash for dining out?"

August business was "way down" at Ray & Sons Auto Repair in Royal Oak, according to employee Larry Schneeman.

"If someone's driving a new car, they're not bringing in an old one to get fixed," he said. "I'm not going to see some of my customers now for years because they bought new cars."

The ones who couldn't afford to buy new cars even with the clunkers rebates probably won't be able to afford auto maintenance either, Schneeman added.

Retail sales, including back-to-school items, took a hit in August as shoppers put their extra dollars toward buying new cars instead. National retail sales fell 5.8 percent for the week ending Aug. 29, according to a report by Chicago retail analyst ShopperTrak.

Apparel, entertainment, dining and home furnishings all saw less business as a result of cash being redirected to fund car down payments and in anticipation of new monthly car payments, said NPD Group's Cohen.

Overall, August non-automotive retail sales may have been impacted by as much as 12 percent, but the effect will be temporary, Cohen said. September sales may be down by 5 or 6 percent, with an even smaller decline in October.

With more used cars going into the junk pile, used car dealerships also will see a drop in business, said Jessica Caldwell, an analyst with Edmunds.com. Demand for the tools used to advertise used cars, including newspaper and online classifieds and "For Sale" signs in rear windows, also will dissipate.

Even consumers may find themselves on the losing end.

Fewer cars on the secondhand market mean shoppers will have a harder time finding used cars or used car parts, Caldwell said. "It's kind of challenging for folks looking for used vehicles to find one now."

Charities that rely on used car sales received fewer donations as vehicles instead went into the clunker pool.

"It breaks my heart to see perfectly good cars -- better than the ones we sell -- get scrapped," said John Salvador, a manager at Charity Auto Auction in Detroit. The organization acts as a middleman between car donors and charities, selling vehicles at auction and giving the proceeds to groups such as Habitat for Humanity.

The average car fetches between $800 and $1,400 at auction. The buyers would not qualify for a new car loan. "They need these cars because that's all they can get," Salvador said.

Still, analysts say the spin-off benefits of cash for clunkers already are evident across the auto industry and other sectors.

"Overall, the industry is a winner," said Jeff Schuster, executive director of forecasting for J.D. Power & Associates in Troy. "The industry has essentially been without food for a while, and now you're seeing shipments of relief."

The program is a boon to dealerships, factories and suppliers, as well as to restaurants and other businesses in communities with plants producing new cars.

"The big deal in the economy right now is to find something that will stimulate activity," said David Cole, chairman of the Center for Automotive Research in Ann Arbor. It was "an injection of steroids into the economy -- something that gets things moving quickly."

Scrap yards, the final destination for clunkers, are seeing an uptick in business, crushing more old cars and putting them through the shredder before sending them off to steel mills to be melted down and reshaped.

"We've gotten some good volume out of it," said Jim Burns, owner of A-1 Auto Salvage and Scrap in Ypsilanti. "I see nicer cars now than we've gotten in the past. These are vehicles that, if the engines weren't killed, could all be resold."



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