Skip to Content
Stock Strategist

Beyond Cash for Clunkers

Industry fundamentals will drive auto dealer performance more than government stimulus.

Mentioned: , , , , , , , , ,

The U.S. government's Car Allowance Rebate System (CARS), more commonly known as "cash for clunkers," has brought a lot of attention to the auto dealer sector. With dealer stocks having had a huge run in 2009, we thought this was a good opportunity to discuss CARS' impact on the auto industry, why we think the program is overhyped, and where the sector is going following one of the worst sales declines in history.

CARS Sales: Incremental or Pull-Forward?
First, let's look at the current impact of the CARS program. The $3 billion stimulus has been a success in that it has dramatically increased light-vehicle sales. According to Automotive News, the July seasonally adjusted annualized sales rate, or SAAR, increased to 11.1 million vehicles. No prior month this year even reached 10.0 million in annualized sales, so we think the program has brought consumers into showrooms who otherwise would not have bought a vehicle. The risk, of course, is that this incremental demand eventually turns into pull-forward demand. In other words, the stimulus could pull 2010 sales into 2009.

David Whiston does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.