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‘Cash for Clunkers’ could drive retail sales into slump

WEST LAFAYETTE, Ind. — The government’s “Cash for Clunkers” program, credited with boosting auto sales in July, could have the opposite effect on retailers heading into the back-to-school and holiday shopping seasons, a Purdue University retail expert says.

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 cars and trucks who trade them in for new, more fuel-efficient vehicles. The program has been wildly successful for automakers. But the money spent on monthly car loans and interest payments won’t be available for other retail spending, says Richard Feinberg, a researcher with the Purdue Retail Institute.

The money spent on monthly car loans and interest payments won't be available for other retail spending, says Richard Feinberg, a researcher with the Purdue Retail Institute.

The money spent on monthly car loans and interest payments won't be available for other retail spending, says Richard Feinberg, a researcher with the Purdue Retail Institute.

“Retailers are still in pain from a very poor 2008 Christmas holiday retail season. After suffering from the worst holiday sales season since 1970, retailers will be facing an even more dismal 2009 in part because of the ‘Cash for Clunkers’ program,” he says.

If Congress approves, the government may spend as much as $3 billion on the program, translating into about 750,000 new cars.

“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 says. “That would translate to $1.5 billion taken out of circulation for the five months of back-to-school, preholiday and holiday sales.”

That comes as retailers already were concerned about 2009 holiday spending because of continued high unemployment and low consumer confidence, Feinberg says.

“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 says.

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