Was Cash for Clunkers Good for Detroit?

When Julia Reusch of Blue Bell, Pa., decided to trade in her 1999 Ford Explorer as part of the cash-for-clunkers program, she nixed the idea of purchasing another Ford product. "I didn't feel compelled to buy American, given my experience with the Ford," says the 28-year-old who noted that her Explorer was problematic even when it was new. Instead, she opted for a Toyota Prius. After only a week, she's hooked. "It's wonderful. I love it," she says.

That's great news for Toyota, but it's hardly the kind of sentiment Detroit's automakers were banking on when the clunkers program launched at the end of July. The program was originally designed to boost the economy in general and the nation's auto industry in particular. But the latest Department of Transportation statistics, released last week, show that American cars represented a total of 42 percent of vehicles purchased under the $3 billion U.S. government-funded program. Only two U.S. models--the Ford Focus and Ford Escape--were among the top 10 cars sold; Toyota and Honda together hold six of those spots. Even though final sales data isn't yet available, those figures are unlikely to change much now that the program is set to end on Monday, Aug. 24.

This program was "not the shot in the arm" for Detroit that many thought it would be, says Gerald C. Meyers, a professor at the University of Michigan's Stephen M. Ross School of Business. That's because the imports "are there with the design and the inventory," he says. Joe Wiesenfelder, senior editor of Cars.com, an online site for car shoppers, says that those participating in the vehicle-swap program have shown a preference for smaller cars, "and that's where the domestics are weakest, both in products and reputation." Chrysler and General Motors are also suffering from lower inventories, because of the production shutdowns and slowdowns associated with their bankruptcy periods, he says. "It's likely the foreign brands will come out on top in terms of new vehicles purchased in exchange for clunkers." That's not an entirely bad thing since foreign brands like Honda and Toyota have long had U.S.-based factories as well as American workers and dealer networks that also benefited from the program.

Even though Ford has made great strides in developing quality cars, it's drivers like Reusch who stand to continue penalizing the brand because of their experiences with their older vehicles. General Motors and Ford "have really good, reliable cars, but they're being bitten again by their past transgressions," says Jonathan Linkov, editor of Consumer Reports' autos coverage.

Kent Nessel, 38, from Danielsville, Ga., traded in his 1998 Jeep Cherokee for a Nissan Versa, lured by the high marks it received from Consumer Reports. Though he felt "pangs of guilt" buying a foreign car with the help of U.S. taxpayer money, he didn't find enough available domestic choices that got 27 miles per gallon. "If the Big Three could compete with the foreign makers, I probably would have gone with one of them," he explains.

But domestic automakers take issue with arguments that they don't have enough fuel-efficient offerings, and that consumers aren't flocking to them. Ford and GM ramped up inventory in response to the program's demand. Kerry Christopher, a spokesman for GM, also points out that the company offers 74 eligible cars and trucks. Over at Chrysler, spokesperson Kathy Graham says 70 percent of its lineup qualified.

With or without the clunkers initiative, it remains to be seen whether customers will buy American. A recent University of Michigan's American Customer Satisfaction Index showed that although the scores increased for all domestic companies, they still fall behind Honda and Toyota. And customers hold a strong perception that the Big Three don't have enough attractive, small, fuel-efficient vehicles, says John Wolkonowicz, an automotive analyst for IHS Global Insight: "They think of a big truck and go to Chevy. They think small and go to Toyota." GM has a product in every category eligible for the program, but consumers aren't aware of it, a marketing flaw on GM's part, says Wolkonowicz.

For most consumers, says Linkov, it's ultimately about mileage, with Toyota and Honda eking out better numbers than all comparable domestic vehicles. That was certainly the case for Karen Mallia, 54, from Columbia, S.C. She tried in vain to find a domestic brand to replace her 2000 Chevy Blazer. She says the Ford Fusion didn't come in a hatchback and the Saturn Vue and Chevrolet Equinox were too big. She ultimately settled on a Toyota Matrix--something smaller, reliable, and fuel efficient. "I felt some underlying guilt that there was no domestic car that would suit my criteria, but honestly, that's why the U.S. car industry has been in such trouble for so long," she says.