Cash for Clunkers
A Potential Long-Term Winner
In Case You Missed It
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Last year, after much soul-searching, I decided to trade in my trusty 1998 Toyota Avalon in favor of a smaller, better-for-the-environment car. I’d put about 150,000 miles on the Avalon and she was beginning to seem a bit worse for the wear.
I traded in my Avalon for a 2009 Toyota Matrix, a car I’d been coveting since my cousin got one a few years ago. It’s much smaller but with a hatchback that provides excellent cargo space and it gets better gas mileage.
According to Toyota, the 1998 Avalon gets 19 miles per gallon city and 27 miles per gallon highway, not bad for such a large car. But the Matrix gets 26 miles per gallon city and 32 miles per gallon highway, a fact that pleased me greatly since I drive about 23 miles to work each day (and 23 miles back), mostly on the highway.
(I know a Prius would have been REALLY environmentally friendly, but I love taking road trips and the trunk space was just not sufficient.)
At the time, there was no such thing as the Cash for Clunkers program that’s available now. My Avalon wouldn’t have been eligible anyway, as it comes in well above the 18 combined mile-per-gallon qualifying mark.
In case you haven’t heard, Cash for Clunkers, now called CARS, for CAR Allowance Rebate System, is a program run by the U.S. Department of Transportation that people driving old, gas-guzzling vehicles gives a cash incentive to trade them in for new, more fuel-efficient ones.
Basically, all you have to do is go to the program’s website, find out whether your vehicles qualify and if they do, you can either get a $3,500 or $4,500 discount for your trade-in vehicle. As the Web site puts it, “The program is designed to energize the economy; boost auto sales and put safer, cleaner and more fuel-efficient vehicles on the nation’s roadways.”
Well the program, which is supposed to run from July 1 to November 1, has been such a hit that it has already run out of funding. Congress has just added an additional $2 billion to the nearly depleted $1 billion the program started with.
This week, President Barack Obama said that about 300,000 vehicles have already been purchased through the program and urged Congress to extend the program to keep up with surging demand from eager car buyers.
(According to CNN Money, the 10 most popular vehicles purchased under the program so far: (1) Ford Focus; (2) Toyota Corolla; (3) Honda Civic; (4) Toyota Prius; (5) Toyota Camry; (6) Ford Escape; (7) Hyundai Elantra; (8) Dodge Caliber; (9) Honda Fit; and (10) Chevrolet Cobalt.)
The plan actually seems to be one of the better ones the U.S. government has come up with over the years, and the fact that it was put into action so quickly makes it even more impressive.
The skeptic in me says that the boost to the auto industry amid a terrible recession is probably more important to Congress than the benefits to the environment. But if it can help jump-start the economy, while taking some of our many gas-guzzling vehicles off the road, I think the program will be worth it.
(I did love my new car very much until Thursday morning when I went outside to go to work only to find my car was dead, dead, dead. No battery power after three jumps and no electrical power at all. After a call to AAA, two tow trucks and a trip to the Toyota dealer, I learned that I probably need a new computer for my year-and-a-half old car. The good news: This will be covered under my warranty. So until it gets fixed, I’m tooling around town in a brand-new Toyota Corolla. It’s nice car and I’d recommend it to anyone thinking about trading his or her car in under the Cash for Clunkers program.)
Many of our editors have warned against investing in auto industry stocks that were hit especially hard in last year’s bear market. But, there are a few names in the sector worth discussing and one of them, Tata Motors (TTM) has been featured here before a few times.
Here’s what Timothy Lutts wrote back on May 18 about the company:
“Back on May 7, soon after General Motors announced that it had lost $6 billion in the first quarter, I wrote the following in Cabot Wealth Advisory:
“There is, however, one auto stock that’s intriguing. It’s Tata Motors (TTM) of India, with $9 billion in revenues over the past 12 months. Tata acquired Jaguar last June, and we were impressed to read early this year that the top marques in the J.D. Power quality rankings were Jaguar and Buick. And now Tata’s come out with the $2,500 Nano, a car designed for the masses of India that has the potential to succeed like the original “people’s car,” the Volkswagen Beetle. Tata has already received 203,000 orders, including deposits of--brace yourself--77% of the selling price. The first cars will be available in July. And Tata pays a dividend of 4.5%
“Furthermore, TTM has an attractive chart. After the market bottom of early March, the stock bounced from 3 to 8, and over the past four weeks it’s built a very nice and tightening base under 8, apparently building steam for a breakout into new-high territory and another advance. I think the odds are pretty good.”
“After that, the stock continued to trade tightly between 7 and 8. This past weekend the Indian elections were concluded, and today all Indian ADR (American Depositary Receipts) soared. Tata hit 9.74 and then pulled back a bit. I still like it, long-term.”
TTM pulled back a little after that, but found support around 8. Since then, the stock has been motoring ahead, recently closing near 12. So even if you don’t have a car to trade in under the Cash for Clunkers program, you can still buy a piece of the fuel-efficient vehicle pie.
In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, I have links below to each issue.