Credit Suisse First Boston: Transplants to Take 60% of Federal Clunker Cash

Robert Farago
by Robert Farago

Analysts (this armchair pundit included) are busy re-calibrating their expectations of the U.S. new car market post-Cash for Clunkers (a.k.a. C.A.R.S.). The big question hanging over the proceedings: has Uncle Sam [re]created a new car bubble? And, if so, what happens when it bursts (as bubbles are wont to do)? And if so, when? Meanwhile, we’re getting answers to some of the other ponderables, such as who benefits most from taxpayer largess? In a nutshell, not the domestics. Credit Suisse First Boston weighs-in with their take on the C4C tsunami.

We expect the annualized light vehicle selling rate (SAAR) to run in a range of 12.1 – 12.4 million units in July, the mid-point of which would be about 3% below the year-ago pace of 12.6 million, and up sharply from last month’s pace of 9.7 million. We expect unit volume (selling day adjusted) to be down in a range of 4% – 6% versus July 2008. That compares to a year-to-date decline of 35% through June.

• This sales forecast required a little more estimation than normal, on two fronts. First, the BEA has not yet posted the July seasonal factors to its website. So we came up with our own factors by averaging the past July factors, but we stuck to those years when July had 26 selling days.

• The bigger wildcard in forecasting July sales is the impact of Cash for Clunkers. Company contacts, dealer contacts, media reports, and government officials are all reporting the $1 billion allocated to the Clunkers program has been exhausted. Assuming an average scrap incentive of $4,000 per vehicle, that would translate to 250,000 light vehicle sales attributable to the Clunkers program.

• We have made a few assumptions around the actual number of Clunker-related sales that will be entered in the month of July. These assumptions are discussed in detail in the report. In the end, our sales forecast is based on a base run rate of sales in a range of 9.5 – 9.8 million, plus an incremental 235,000 units. We also assume the domestic brands garner 40% of the Clunkers trade-in business, while the import brands take 60%.

• Assuming that our sales forecasts are roughly correct for the month, and that the automakers build approximately to Ward’s July production forecast, we think Big 3 inventories are likely to end July about 20% understocked. Specifically, we see GM dealer stocks ending the month about 13% understocked, Ford inventory ending July about 24% understocked, and Chrysler ending the month about 31% understocked.

• If we assume 1) the SAAR can maintain a pace of 12.0 million units, on average, in Q3, 2) that Q3 production is consistent with Ward’s third quarter production forecast for GM and Chrysler, and 3) that Ford builds consistent with the company’s latest production forecast of 485,000 units . . . then Detroit 3 dealer stocks could end September about 30% below normal.

• This would leave significant upside to the production schedule that we used in this inventory analysis. That production outlook calls for Q3 output to be down about 25% year-to-year, but that could improve greatly if Clunkers can drive a Q3 SAAR of 12.0M.

Robert Farago
Robert Farago

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  • WildBill WildBill on Aug 04, 2009

    The Subaru dealer I've been dealing with is a small one, only has three sales people working normally. They have been crazy busy, working 12 + hrs. a day. They are essentially sold out of Foresters where they normally have a dozen or more on the lot. The manager told me they sold 6 cars just yesterday morning. The used car manager that has been helping them out, we've been working with him on our Forester that he got for us from another dealer in town, told us to take it home for a "24 hr. test drive" to get it off the lot so one of the guys wouldn't sell it (we haven't signed anything yet, so it is vulnerable). Obviously they have something that the others don't. This is our first time looking at a Subi and we have been very impressed with what we saw. Have had Fords and Toyotas lately but didn't want to go back to that. And they treated us well and have been patient with us getting the documents for our clunker.

  • Slocum Slocum on Aug 04, 2009
    Every dollar the government puts into this is being matched with at least two more dollars put up by the buyer. In other words, taxpayers are paying at most 'only' a third of the cost of the new cars that clunkers program buyers are driving off the lots. I feel so much better now. You know what, lets expand the program beyond cars. If I can get the rest of y'all to kick in a third of the price, I'll be more than happy to come up with the rest of the cash to buy a new car or a new flat-screen TV or a new computer, or...any number of things. Which is actually, you know, good for y'all because it will stimulate the economy and reduce unemployment. The brilliance is in the simplicity really -- just send me money and I'll spend it. How could you argue with a successful government program like that?
  • Ted Lulis Head gaskets and Toyota putting my kids through college👍️
  • Leonard Ostrander Plants don't unionize. People do, and yes, of course the workers should organize.
  • Jalop1991 Here's something EVangelists don't want to talk about, and why range is important: battery warranties, by industry standard, specify that nothing's wrong with the battery, and they won't replace it, as long as it is able to carry 70% or more of its specified capacity.So you need a lot of day 1 capacity so that down the road, when you're at 70% capacity with a "fully functioning, no problem" car, you're not stuck in used Nissan Leaf territory."Nothing to see here, move along."There's also the question of whether any factory battery warranty survives past the original new car owner. So it's prudent of any second owner to ask that question specifically, and absent any direct written warranty, assume that the second and subsequent owners own any battery problems that may arise.And given that the batteries are a HUGE expense, much more so than an ICE, such exposure is equally huge."Nothing to see here, move along."
  • Roger hopkins The car is in Poland??? It does look good tho...
  • Kwik_Shift_Pro4X The push for EV's is part of the increase in our premiums. Any damage near the battery pack and the car is a total loss.