Cash For Clunkers Hangover | The federal government's program spurred local car sales – but now what?
Photo/Shaun Tolson
Larry Gordon, owner of Colonial Chevrolet in Acton.
Three weeks ago, Larry Gordon, owner of Colonial Chevrolet in Acton, saw his showroom swarming with prospective customers and his sales staff overwhelmed with paperwork. Now, that same showroom has all the makings of a ghost town.
In the wake of a month-long sales frenzy spurred on by the Cash for Clunkers program, Gordon is faced with an unsettling situation: car sales have stalled. He’s optimistically increased his orders for new vehicles in the hope that sales will pick up in October and November — as they historically have done — but with no prior experience dealing with such a program, Gordon and other auto dealers in Central Massachusetts find themselves nursing a sales hangover and wondering how long it will last.
The Devil’s In The Details
Some dealerships around the state were hit so hard by a depleted inventory thanks to Cash for Clunkers’ success in spurring sales that they’ve been forced to re-arrange their existing lots to give the appearance that they have more cars than they do.
That’s not been Gordon’s problem. For Colonial Chevrolet, the biggest challenge is planning for the future. During the four weeks of the program, however, he was just focused on getting cars sold, despite the problems with the program’s administration.
“The communication was nonexistent early on,” Gordon said. “The government couldn’t get the word out to dealers and dealers couldn’t get answers.”
Late Nights
It was the online submission of claims that really had dealers pulling at their hair. Initially, the process of processing a deal took six hours as the federal government’s overwhelmed system crashed repeatedly.
“Claims had to be sent in over the middle of the night to get them through,” echoed Barry Madden, co-owner of Franklin Ford.
“We had crews of people who were logged in from their homes or in the building at 2 or 3 o’clock in the morning to input the material.”
Almost a month since the end of the program, Gordon said he will need to use the month of September to gauge his inventory plans for the rest of the year. That, he says, will give him direction.
Of course, he and his staff were in dire need of direction when the program first started during the last week of July.
That direction never came, and because of it, tension was high as many dealers had to face crowds of customers with few answers and even less confidence in the system.
Therein rests the greatest blunder with the program: the government’s inability to forecast its extreme popularity.
After all, as Robert O’Koniewski, executive vice president of the Massachusetts State Automobile Dealers Association outlined in a recent WBJ editorial on the Cash for Clunkers program, the original amount of money appropriated to the program was $1 billion, not the $3 billion that eventually backed it.
Not to mention the fact that the program, which was originally set for 14 weeks—with a Nov. 1 ending date, or until the funding was gone—was so popular it lasted only four.
The Cash for Clunkers program ran from July 27 to August 25 and by the time the final claim was entered into the government’s database, more than 681,000 outdated, beat-up, gas-guzzling vehicles were taken off the roads.
With it came an equal number of new car sales, as well as almost $2.9 billion in rebate applications.
The incentive program had a positive impact in a number of areas. For starters, the average fuel economy of the vehicles that were traded in was 15.8 miles-per-gallon, whereas the average fuel economy of the new vehicles purchased was 24.9 miles-per-gallon.
That amounts to a 58 percent improvement, which is a boon to both the environment and the country’s need for foreign oil.
The increased sales also spurred increased demand for new inventory, which has led to more work at automotive manufacturing plants across the country.
In fact, according to the Department of Transportation, the increased demand is expected to “create or save 42,000 jobs in the second half of 2009.”
In Massachusetts there were more than $64 million in Cash For Clunkers rebates requested as of Sept. 16. Of that about $54 million, or 84 percent had been paid or approved for payment. Califorinia dealers requested the most rebates of any state, totaling more than $324 million. More than 80 percent had been processed. (Click here to see the program's process.)
Planning Problems
The now-hungover local auto dealers all recognize those accomplishments, but many can’t forget the hassles that were involved.
“The administrative side of things was a nightmare,” said Madden. “Whoever designed the administrative process had little or no experience of the regular process of purchasing and financing a car. It flew in the face of all the normal timelines.”
Not only that, but in other respects the program conflicted with the general highs and lows of the automotive industry.
August is typically the best month for auto sales, which has some dealers scratching their heads as to why the program was unveiled when it was, though Gordon says dealers were as hungry for the incentive program as consumers.
“I don’t know if anybody thought about the timing,” he said.
“Obviously the dealers were looking for the program and the lawmakers were looking for a stimulus. You just hate to have a stimulus program on your best month. The plan might be better received when dealers might need to generate more business.”
Moving Forward
As of Sept. 17, most of the revenue generated from the Cash for Clunkers program was finding its way back to the dealerships.
Of Franklin Ford’s 31 clunker claims, only two were outstanding.
As for Colonial Chevrolet, Gordon projected that about 85 percent of its claims had been processed and paid.
“The worst part of the program was the not knowing,” he said. “When dealers had hundreds of clunker rebates at risk and no knowledge of when and if they were going to get paid. That’s when things were getting ugly.”
Of course, things were ugly on other levels, as well.
While dealers collectively agree that the Cash for Clunkers program was a greater asset for consumers than dealers, consumers were not immune from the program’s hiccups.
Like Colonial Chevrolet, Franklin Ford was not hit so hard by inventory inadequacies that it now needs to reconfigure its lots.
However, an inventory shortage near the end of the four-week program prevented some potential customers from cashing in.
“I certainly could’ve used another 10 to 12 of each kind of vehicle for deals at the end of the program where I just didn’t have the product for the people and couldn’t obtain it from other dealerships because they were in the same situation,” Madden said.
Under normal circumstances, he said he would either trade or buy a car wholesale from another dealer to meet a customer’s need, but the overwhelming demand across the board during the Cash for Clunkers program eliminated any kind of flexibility because all dealers “were hanging on to everything that they had.”
Central Massachusetts auto dealers seem to agree, from its timing to the administrative processes to the necessary preparation, the Cash for Clunkers program could be a great model by which changes and improvements could be made to a future buying incentive plan.
With that said, most dealers are willing to focus on the positive results more than the negative aspects that developed during the process.
Time undoubtedly will do plenty to heal all wounds, but for some, the cuts are still a little too fresh.
“I think it worked, but we paid a price to make it work,” Gordon said. “We were happy that it started and we were equally happy that it ended.”
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