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'Clunkers' Cash Could Hurt Other Retailers, Researcher Warns

Purdue Expert Warns Against Fallout From Government Program

POSTED: 4:17 pm EDT August 6, 2009
UPDATED: 10:53 pm EDT August 6, 2009

The government's popular "cash for clunkers" program, credited with boosting auto sales in July, could hurt other retailers in the long run, a Purdue University retail expert said.

The program, officially known as Car Allowance Rebate Systems, or CARS, was designed to stimulate sales while promoting energy efficiency. It provides $4,500 to owners of older vehicles who trade them in for new, more fuel-efficient vehicles.

The initiative has been very successful for auto dealers, but the money spent on new monthly car loans and interest payments could hurt other retail spending, said Richard Feinberg, a researcher with the Purdue Retail Institute.

"If the average monthly loan payment for a new car is $400, then the amount of money not available for retail sales per month could be $300 million," Feinberg said. "That would translate to $1.5 billion taken out of circulation for the five months of back-to-school, preholiday and holiday sales."

But Barry Morgan, the general sales manager at Ray Skillman Kia in Indianapolis, said that the auto industry's success helps keep others in business.

"The automobile business is the backbone of this country's manufacturing. They affect everything, and I think the trickle down is huge," he told 6News' Renee Jameson. "If automobile manufacturers go away, a lot of other folks go with them."

John Covert just bought a new Kia through the "cash for clunkers" program. He also runs the long-time east-side eatery, Indy's Historic Steer-In. So far, he said he hasn't seen an impact of people spending less.

"If you've got the community surrounding us, if all of them went out and overspent, then I think, yeah, we would see a crunch from it, but we haven't seen anything yet," he said. "I think if the person doesn't approach it smartly, and they see they all this money and they want a bigger nicer car … I think it could hurt them financially."

Still, Feinberg said the affects of the program won't likely hit until the holiday season, a period retailers are already concerned about spending due to continued high unemployment and low consumer confidence.

"With no bailout for retailers on anyone's radar, the 'cash for clunkers' program could have the unanticipated effect of making an even poor holiday retail season even harder," he said.

Members of the U.S. Senate were considering Thursday whether to authorize $2 billion to keep the program running past this week. The measure already passed the House.

More Information: Top "Cash For Clunkers" Cars
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