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the impact of the cash for clunkers program on customer loyalty

the impact of the cash for clunkers program on customer loyalty

ong>ofong> a Social Market Economy, whereby ong>theong> state takes a leadership role to stabilize central institutions and branches. Automobiles traded-in automatically qualified with a minimum age ong>ofong> 9 years, as long ong>theong> applicant had registered ong>theong>m ong>forong> more than a year. New automobile trade outs had to be a maximum ong>ofong> one year ong>ofong> age and had to fulfill ong>theong> European Emission Standard “Euro 4”—a raong>theong>r low standard. The ong>programong> which started in ong>theong> first half ong>ofong> January 2009 with a budget ong>ofong> 1.5 billion Euro (600,000 cars) was planned to last till ong>theong> end ong>ofong> ong>theong> year. Due to strong demand it was however expected that ong>theong> budget will already be used by May 2009. The Federal government decided ong>theong>reong>forong>e on public pressure to increase ong>theong> budget to 5 billion Euros. In September 2009, ong>theong> 5 billion Euro was entirely used up and ong>theong> ong>programong> was phased out. Approximately 600,000 new and one year old cars were financially supported with a fixed sum ong>ofong> 2,500 Euros each. Due to ong>theong> high demand, ong>theong> ong>programong> was extended to ong>theong> end ong>ofong> December and increased to a total sum ong>ofong> 5 Billion Euro. It was ong>theong>reong>forong>e ong>theong> largest ong>programong> ong>ofong> its kind in World History—both in relative as well as in total terms. From a short-term economical perspective, ong>theong> results were disappointing (Haucap and Coenen, 2010). Most studies show that ong>theong> ong>cashong> ong>forong> ong>clunkersong> ong>programong> resulted raong>theong>r in deadweight effects. Blum and Freye (2009) see ong>theong> deadweight effects as accounting ong>forong> approximately 75% ong>ofong> all bought cars during ong>theong> duration ong>ofong> ong>theong> ong>programong>. Moreover, ong>theong> demolition ong>ofong> assets (automobiles), which are widely regarded as an investment—is an irrational economic target. The export ong>ofong> used cars consists ong>ofong> a yearly quantity ong>ofong> 500,000 units and is an important economic factor ong>forong> ong>theong> German economy. Intersectional effects took place, as consumers reduced ong>theong>ir spending ong>forong> fast moving and durable consumer goods (appliances). Initially planned to revitalize ong>theong> automobile market, ong>theong> ong>programong> raong>theong>r turned out to be barrier ong>forong> a necessary consolidation ong>ofong> a market, which has suffered structural problems ong>forong> several years. The short-time increase ong>ofong> car sales was impressive, but might result in lower sales in future. Concerning ong>theong> environmental purpose ong>ofong> ong>theong> ong>programong>, it is doubtful that any effects were achieved (Haucap and Coenen, 2010). The substitution ong>ofong> older cars by newer and more efficient cars had a direct ong>impactong> on emissions. On ong>theong> oong>theong>r hand, ong>theong> average life-age ong>ofong> a car, which was traded in, was similar to ong>theong> ones that are usually exported in ong>theong> used car market (14.4 years). Moreover, ong>theong> environmental calculation has to include emissions that incurred during ong>theong> process ong>ofong> production. From a global perspective, ong>theong> balance might even be negative, as it jeopardizes ong>theong> replacement ong>ofong> older cars in Eastern Europe. The calculations provided by various authors show great differences, depending on ong>theong> purpose ong>ofong> each study (IFEU Heidelberg, 2009). Most likely, it would have been more efficient to use ong>theong> 5 billion Euro subsidies in anoong>theong>r area. The switch to smaller cars due to ong>theong> ong>programong> incentives was not sustainable. The figures after ong>theong> financial crisis show that ong>theong> producers ong>ofong> smaller and fuel-efficient vehicles decreased significantly, whereby ong>theong> ones ong>ofong> ong>theong> premium class producers stagnated. The ong>cashong> ong>forong> ong>clunkersong> ong>programong> in ong>theong> United States ong>ofong> America The CARS (Cars Allowance Rebate System) ong>programong> was a fiscal stimulus ong>programong> with several purposes in mind. The first purpose was to stimulate ong>theong> economy by increasing consumer purchases in ong>theong> short run at ong>theong> expense ong>ofong> consumption in ong>theong> long run. The second was to support ong>theong> floundering US automobile industry and thus save thousands ong>ofong> jobs. The third goal was to take polluting cars ong>ofong>f ong>ofong> ong>theong> road and replace ong>theong>m with cleaner more efficient cars, which would have ong>theong> double ong>impactong> ong>ofong> reducing pollution and also lessening America’s dependence on ong>forong>eign sources ong>ofong> oil. The details ong>ofong> ong>theong> ong>programong> are as follows: “The ong>programong> provided $3,500 or $4,500 bonuses to buyers who traded in light motor vehicles with mileage ratings ong>ofong> 18 miles per gallon or less, who purchased a new car or truck with an improved mileage rating, and whose trade-ins and new purchases met certain oong>theong>r criteria” (CEA, 2009). In order to get ong>theong> maximum amount ong>ofong> $4,500, ong>theong> mileage had to improve by 10 mpg ong>forong> new cars and 5 mpg ong>forong> new light trucks (ong>theong>re were separate criteria ong>forong> medium trucks). Initially, 1 billion dollars was assigned to ong>theong> ong>programong>, which was expected to last from July until November ong>ofong> that year. However, due to ong>theong> unexpected popularity ong>ofong> ong>theong> ong>programong> ong>theong> available funds were used up in one month. The US congress quickly allocated anoong>theong>r 2 billion dollars to ong>theong> ong>programong>, which lasted until ong>theong> end ong>ofong> August ong>ofong> that year. There were problems associated with ong>theong> distribution ong>ofong> funds,

which caused many auto dealers to drop out ong>ofong> ong>theong> ong>programong>. Payments took longer than expected with some automakers even ong>ofong>fering to advance dealers money until ong>theong> government payments arrived. In ong>theong> US, ong>theong> ong>programong>, which lasted from July-August 2009, created an incentive ong>forong> consumers to switch in ong>theong>ir old cars ong>forong> new cars. Some ong>ofong> ong>theong> consumers turned in a car ong>ofong> a certain brand and decided to purchase a more fuel-efficient model from ong>theong> same company. However, many customers opted to switch brands. According to ong>theong> CEA (Council ong>ofong> Economic Advisors ong>forong> ong>theong> President) most owners ong>ofong> used cars would normally buy less old used cars in ong>theong> future and this ong>programong> would create ong>theong> financial incentive ong>forong> ong>theong>m to instead purchase new, cleaner cars—resulting in more work ong>forong> US factories (CEA, 2009). During ong>theong> ong>programong> ong>theong> number ong>ofong> hybrid vehicles sold naturally rose because ong>ofong> ong>theong> incentive toward more fuelefficient cars. Interestingly, out ong>ofong> all ong>ofong> ong>theong> hybrid models sold ong>theong> Ford Company was ong>theong> only domestic brand, which even ong>ofong>fered hybrid models ong>forong> sale. The environmental ong>impactong>s that ong>programong> will have are also ambiguous. Knittel (2009) found that ong>theong> reduction in greenhouse emissions was achieved in an overly expensive way through ong>theong> ong>programong>. In addition, ong>theong> overall ong>impactong> to environment will be quite small. The oil savings associated with replacing ong>theong> older cars with newer ones is expected to reduce oil consumption by 12,000 barrels per day in a nation that consumes 9 million barrels ong>ofong> oil per day. In addition, ong>theong>re is also ong>theong> worry that car drivers who have more fuel efficient cars will consequently drive more miles as ong>theong>ir cost per mile driven is reduced by ong>theong> increased fuel efficiency. There is also ong>theong> question ong>ofong> ong>theong> added pollution involved in ong>theong> scrapping ong>ofong> ong>theong> traded in vehicles. Engine blocks from older vehicles that might have oong>theong>rwise been recycled were required to be filled with silicone and discarded. As expected, ong>theong> ong>programong> dramatically increased ong>theong> sales ong>ofong> cars in ong>theong> automobile industry ong>forong> both domestic and ong>forong>eign brands. However, some brands did better than oong>theong>rs. Ford, Toyota, and Honda were seen as ong>theong> biggest winners ong>ofong> ong>theong> ong>programong>, all ong>ofong> which ong>ofong>fered fuel-efficient models (CARS, 2011). In a recent study by ong>theong> National Bureau ong>ofong> Economic Research an investigation into ong>theong> effects ong>ofong> ong>theong> ong>programong> were investigated. According to Mian and Sufi (2009) ong>theong> main ong>impactong> ong>ofong> ong>theong> ong>cashong> ong>forong> ong>clunkersong> ong>programong> in ong>theong> US was that it only pushed car sales ong>forong>ward. Meaning that overall, ong>theong> results ong>forong> ong>theong> automobile industry were ambiguous at best. The authors also found that ong>theong>re was a limited increase in employment in cities where ong>theong> automobile industry are located but could not be sure if ong>theong>se increases were associated with ong>theong> ong>programong> or ong>theong> government bail outs ong>ofong> ong>theong> automobile industry, which were taking place at ong>theong> same time Methodology The research into ong>theong> topic ong>ofong> consumer loyalty with relation to ong>theong> ong>cashong> ong>forong> ong>clunkersong> ong>programong>s in ong>theong> US and Germany takes a systems analysis approach. Systems analysis is a method through which models ong>ofong> existing real systems are explained and described in order to better understand ong>theong>m. The relationships between ong>theong> components ong>ofong> ong>theong> system are described and mapped out (Kumar, 2005). This methodology was chosen over a more analytical approach because ong>theong> goal ong>ofong> this research was to understand ong>theong> way that consumer loyalty interacts with ong>theong> automotive industry. A more analytical approach would have required ong>theong> measurement ong>ofong> specific levels ong>ofong> consumer loyalty. As shown earlier, previous academic work relating to consumer loyalty has focused on issues relating to specific brand characteristics, manufacturing, advertising, etc. We add to this general model ong>theong> influence that governmental actions have on consumer loyalty. The purpose ong>ofong> this paper is to construct a model ong>ofong> consumer loyalty that includes ong>theong> effect ong>ofong> governmental involvement in markets. This research seeks to develop a better understanding ong>ofong> ong>theong> factors that affect consumer loyalty which have not been developed so far in ong>theong> body ong>ofong> academic research. The model ong>forong> ong>theong> system involving consumer loyalty begins with ong>theong> factors, which affect loyalty, shown in ong>theong> squares with ong>theong> dark arrows pointing towards consumer loyalty (Figure 1). Many ong>ofong> ong>theong> factors that affect loyalty have already been developed in ong>theong> existing body ong>ofong> academic research. These include ong>theong> influence that business related factors, cultural factors, and macroeconomic factors. We include governmental factors as a part ong>ofong> ong>theong> factors which influence consumer loyalty and will attempt to show that this influence had a real ong>impactong> on consumer loyalty through ong>theong> implementation ong>ofong> ong>theong> ong>cashong> ong>forong> ong>clunkersong> 5

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