Auto Haulers Report a Boost from Cash-for-Clunkers Plan

This story appears in the Aug. 17 print edition of Transport Topics.

The federal Cash for Clunkers program has helped sell so many cars that dealer inventories are at historic lows, sparking optimism in the auto-hauling industry for a business rebound, with one firm’s CEO saying he already has received firm orders that were like “giving a pitcher of water to a guy dying of thirst in the desert.”

U.S. passenger and light-truck sales fell to13.2 million vehicles in 2008 from an eight-year average of 16.5 units annually through 2007, Paul Taylor, chief economist of the National Automobile Dealers Association, told Transport Topics. That led to cutbacks by auto haulers.

“We are very tied to the auto industry, and we have suffered in tandem with their decline,” Michael Wysocki, chief executive officer of United Road, a major auto hauler, told TT.

In the Cash for Clunkers program, which began July 24, the federal government gives up to $4,500 to buyers who trade in older cars for newer, more efficient models. Dealers must junk all vehicles they take under the program.

Congress rushed an infusion of $2 billion more into the program when the first billion dollars was quickly consumed.

“At the beginning of this month, dealers had only a 47-day supply of cars on their lots, with the most popular often in even shorter supply,” NADA’s Taylor said. “That overall supply has almost certainly dropped lower with the in-creased sales we’ve been seeing this month, not only from the federal program, but by people, once they get into the show room, who are buying cars even without the federal rebate. We believe there is a lot of pent-up demand out there.”

There was only a 25-day supply of the Ford Focus, one of the cars that qualified to receive the full $4,500, Taylor said.

He added that dealers had a 170-day supply of cars when 2009 began, but they aimed to keep a 60-day supply.

“That 47-day supply is a record low inventory and it’s probably much lower than that now,” Egil Juliussen, principal analyst at iSuppli’s Automotive Practice, which tracks both sales of new cars and sales of technology products for them.

“In the sense that inventories are depleted, factories have to crank out more cars, and it will create extra business for car haulers over the next months,” he added. “Suppliers of car parts will also have to ramp up production because of unexpected demand, and that will create even more business for fleets.”

Juliussen said that his company’s research has shown that “dealers already have the confidence” that the new car market has turned around beyond the Cash for Clunkers program.

Mike Riggs, chief executive officer of Jack Cooper Transport, another major auto hauler, agreed. “We’re sort of at the end of the food chain in the auto industry,” Riggs told TT. “We’re the last segment of the industry that’s called in, but we’re already seeing our schedule ramp up in just the past few weeks because our clients have announced solid 60- to 90-day build schedules that call for increased production.”

Without naming his clients, he said every one of them has cancelled scheduled weeklong shutdowns of factories after Sept. 1 that had been put in to enable dealers to sell down inventory.

Riggs said that he believed that the federal program had been the “tipping point” that pushed consumer car demand past its recessionary caution into a normal period.

“Those are the signs that we’re getting from our manufacturers and for us, it’s like someone handing a pitcher of water to a guy dying of thirst in the desert,” Riggs said.

United Road’s Wysocki said that his company has not yet seen increased orders to deliver cars from factories.

“However, our unit that carries single units or smaller numbers has definitely already seen a boost in business from the Cash for Clunkers,” Wysocki said. “Dealers have had to call around to other dealers around the country to get car models they didn’t have and that’s brought us a lot of business.”

Wysocki was also confident that he would soon be receiving stronger orders from manufacturers, after idling trucks and laying off drivers to cut costs.

“Over the last week, we called back 25 drivers,” Wysocki said. “I would hope we would at least be on par with last year. The busy season usually runs from September through November, but if we get lucky, we could have a good December for everyone.”

Wysocki said that United Road derived 40% of its revenue from hauling new cars; 35% from used cars; 10% to 12% from carrying single vehicles; and 10% to 12% from “high-end” deliveries, such as carrying luxury cars or moving race cars or prototypes to trade shows.

“But we are well diversified now, and some of our lines are doing quite well, in fact bringing record profits in 2008,” Wysocki said. “This year was going to be another profitable year, although lower, even before the current upsurge.”