• November 1, 2009

The Obama administration and Edmunds.com are facing off over the validity of Edmunds' analysis of the "Cash for Clunkers" program.

In an Oct. 28 press release, Edmunds.com said its analysis showed that just 125,000 of the nearly 690,000 vehicles sold under the program, formally called CARS (Car Allowance Rebate System), were actually spurred by the incentives. The bulk of the sales would have occurred regardless of the existence of the program, the automotive information site maintains.

Based on spreading the program's total $3 billion costs over just the 125,000 sales it classified as incremental, Edmunds concluded that each vehicle sold cost taxpayers $24,000.

Edmunds.com CEO Jeremy Anwyl also maintained in the release that while October sales are up, "without Cash for Clunkers, sales would have been even better," adding that "this suggests that the industry's recovery is gaining momentum."

The White House quickly responded in the blog on its official Web site, labeling Edmunds' analysis "faulty."

The response said that the analysis is based on "implausible assumptions." First, it assumes that the market for cars that didn't qualify for Cash for Clunkers was completely unaffected by the program, ignoring "not only the price impacts" that the program has on the rest of the vehicle market, "but the reports from across the country" that people were drawn into dealerships by the Clunkers program and ended up buying cars even though they didn't qualify for the rebates, the White House maintains.

Edmunds' assumption that more than 80% of the program's payback would occur this year is also at odds with other independent analyses, including Deutsche Bank's conclusion that there has been minimal payback for the program, the White House stated.

In addition, the White House said Edmunds "ignores the beneficial impact that the program will have on 4th quarter GDP" as a result of automakers ramping up production to rebuild their depleted inventories. Most importantly, the Council of Economic Advisers estimated that the program will create 70,000 jobs in this year's second half, the blog post adds.

On Oct. 29, Edmunds.com released a response to the White House response, maintaining that "consumer incentive programs are always hugely expensive when calculated by incremental sales -- always in the tens of thousands of dollars," and that Cash for Clunkers was "no exception." The company also challenged the plausibility of consumers buying cars because of a program for which they don't qualify, and the conclusion that carmakers' Q4 production could have been based on a "30-day sales blip" triggered by CARS.

Separately, Edmunds.com has also concluded that luxury crossovers are not doing as well as anticipated, nor living up to the expectation that they would be the new fad among car buyers. The firm said that sales of the segment have dropped nearly 25% since 2007, despite the fact that four new products were introduced into the segment during this period.

"The luxury crossover segment has taken a beating in sales because most of today's consumers are concentrating on value," stated Jessica Caldwell, senior industry analyst at Edmunds.com, in a release. "Big profits were anticipated for new models introduced into this segment, and that is just not proving to be the reality for most." -- Karl Greenberg and Karlene Lukovitz