September 3, 2009

Analysts point to a ‘clunker’ bubble

U.S. market analysts said the cash for clunkers rebate program may have created a temporary bubble in the automobile market.

Alec Gutierrez, senior market analyst at Kelley Blue Book, said auto dealers expecting a flood of buyers while the CARS program lasted, stocked up on vehicles and marked up prices, McClatchey Newspapers reported Thursday.

After the federal incentives to trade in gas guzzlers for more fuel-efficient vehicles ended, values (go) right back down and the net effect is we end up where we started, at best, Gutierrez said.

In addition, the program that took more than 700,000 used cars out of circulation would cause the prices for used cars to rise, he said.

There is a detrimental effect for those who can't afford anything more than a clunker, Gutierrez said.

While new car prices may crash below pre-clunker program prices, used car prices are apt to go up, analysts said.

A lot of these vehicles that are now deemed clunkers would've gone to dealers who specialize in the deep subprime market, Tom Webb, chief economist at automobile auction house Manheim told the newspaper.