Dealers Still Awaiting Cash For Clunkers
Early stats from the U.S. Department of Transportation indicate that 690,114 deals were submitted through the Cash For Clunkers program. That brings the total to $2.88 billion, slightly below the $3 billion appropriation. Further, Massachusetts transactions led to a requested voucher total of $64.9 million.
Consumers were able to take advantage of the tax subsidized voucher to buy new, more fuel-efficient cars and trucks that obviously increased foot traffic to dealerships and prompted sales that otherwise may not have occurred.
This provided a burst of economic activity and a breath of cleaner air for the environment. The average fuel economy of the vehicles traded in was 15.8 miles per gallon, and the average fuel economy of vehicles purchased is 24.9 mpg — a 58 percent improvement.
Consumers, factory workers and the environment all came out winners.
The clunkers program undeniably has succeeded in getting customers into showrooms and moving metal off dealer lots. However, the government’s administration of the program has been a disaster.
From the start, dealers have struggled to comply with the government’s rules, bureaucratic processes, and administrative errors. And dealers still have seen very little of the allocated monies.
Red Tape
There were early signs that the government was not ready for the immediate consumer popularity of the program. The program carried an original price tag of $1 billion with an end date of Nov. 1 or until the cash ran out.
The program met the initial appropriation within five days of its July 24 start. That meant 250,000 sets of documents dealers needed to submit to the government for review and approval in order to receive the reimbursement of $3,500 or $4,500. Yet the government originally had only 225 staffers to review these transactions. Now multiply that problem by three as the government threw another $2 billion into the program once it realized it did not know how much of the original $1 billion was left, if any at all. Because of these delays, dealers have considerable cash flow problems that jeopardize their everyday bill paying. Under normal circumstances, a dealer would re-sell the trade-in as used or send it off to auction to get some cash into the business. At the time of this writing, perhaps 2 percent of all deals have been approved and funds remitted to dealers.
Dealers now must sit on pins and needles awaiting the verdict on each sale. For “bad” deals, if the dealer delivered the vehicle prior to rejection, what are the dealer’s options? Did the customer sign a contingency agreement presented by the dealer to return the car if a deal goes south? How much money will dealers be “out” because of rejected deals? Will consumers be driving cars and trucks they did not fully pay for because they were able to game a system that was broken from the start?
These questions obviously concern us as the voice for our member dealers. However, these questions should concern taxpayers, who fronted their money so that others could make purchases.
This Cash for Clunkers program certainly met certain expectations. But it has the potential to be the gift that keeps on giving, good and bad, as the program’s after-effects will be with us for some time to come.
Robert O’Koniewski is the executive vice president of the Boston-based Massachusetts State Automobile Dealers Association. He can be reached rokoniewski@msada.org.
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