Kelley Blue Book: Cash for Clunkers Bubble Will Burst
Here’s one new car shoppers won’t be reading on the home page at Kelley Blue Book. Via press release, the car guide’s boffins wonder what will happen when the federal government stops handing out free money to clunker-driving new car buyers. Unless the Cash for Clunker scheme is extended indefinitely (a possibility) and/or widened to include other types of vehicles (less possible but not improbable), the bubble she gonna burst. And then, bad things. Euphoria, meet reality.
“Dealerships have reported increased foot traffic, creating a false sense of automotive market recovery,” said Alec Gutierrez, senior analyst of vehicle valuation for Kelley Blue Book. “As a result, dealers are going to auction to restock inventory, driving up used-car values. However, the effect of a supply reduction of this magnitude could have an immense impact on these values in the short-term, exacerbating the already-limited supply at auction. If this bubble comes to pass, dealerships will end up with excess inventory of both new and used vehicles and be forced to offer deep discounts to remove surplus inventory, driving values down. Ultimately, there will be the possibility of a severe contraction in auto sales as soon as the Cash for Clunkers program runs out of funding.”
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