Cash For Clunkers Leaves Dealers in the Lurch
Politicians have been quick to crow about the success of the Cash for Clunkers program and its stimulative effect on automotive sales, and compared with dumping over $80 billion into AIG’s black hole, I suppose Clunkers seems like a home run. Thousands of consumers have benefited, cashing in their trades for $3,500 to $4,500.
But most of the auto dealers have been left trying to get reimbursed by the hastily conceived bureaucracy.
For some, it’s hard to work up a lot of sympathy for car dealers. Aren’t these the same miscreants that folklore suggests are less fun to experience than a root canal? Of course, most new car dealers are hardworking entrepreneurs who toil in a hyper-competitive business with high capital costs and modest returns. And with the recent turmoil in the car business, those who survived have struggled to stay afloat.
So the government-driven demand for new cars should be a welcome boon to business, but for most it’s become a boondoggle of paperwork submitted to too few government new hires — who reject 80 percent of the submissions. And even those forms that are correct in every way are still unpaid, leaving dealers who have worked the hardest on the program facing enormous cash flow problems.
Some have had to stop doing deals because they couldn’t float the feds any longer.
When this program was put into place, the Department of Transportation’s National Highway Traffic Safety Administration issued 136 pages of rules, followed by a 20 page amendment, to guide participants. With tongue firmly in cheek, the NHTSA folk claim that this sizeable stack of documents conforms to the government’s Paperwork Reduction Act. That’s a relief.
Among other requirements, the rules assure that participating dealers will be reimbursed within ten days, but that just didn’t happen. Transportation Secretary Ray LaHood held a news conference on August 4 and claimed that payments have begun dispersing after “computer glitches” were fixed. LaHood also claimed that other website problems were addressed and processing should go smoother.
“I’m from the government. I’m here to help you.”
What did they expect, really? I got such a kick out of hearing Dems crow about the success of this program. As usual, they confused enthusiasm for a giveaway as success, rather than successful execution of a project from start to finish. Superficial versus substance. What’s new?
Schadenfreude.
Wow!! It really chokes me up to think the dealers have to wait to get my tax dollars. Maybe in the future President Zero could figure out a way for my money to go directly from my bank account to his cronies. Oh wait; I think he has that in the health care bill.
And they want their hands on healthcare…….
An interesting aspect to all of this is that the majority of “clunkers” are being traded in for foreign cars. I guess buying from G.overnment M.otors wasn’t a selling point? Can’t imagine why not.
Is anyone surprised? It’s the govt version of “robbing Peter to pay Paul.”
I’d love to know the cost of that “hastily conceived bureaucracy,” and of the scrapping of perfectly good automobiles.
So maybe some of the dealerships that survived the POTUS-Dealership Shutdown in June will be forced out of business by this debacle (if their cash flow was already tight)…..
…or maybe this fail becomes the reason for another auto bailout?
I would imagine the Making Good Use of Every Crisis group will be meeting soon.
Are we seeing yet how very, very easy it is for this bunch to create problems for which they magically have the solutions?…and then when the solution fails, that generates a new problem for which they magically have the solution?….and then when that solution fails….
At some point, the whole thing just becomes SUCH an emergency, they will have no choice but to impose martial law, outlaw interstate travel and take over the internet.
The only problem with their long term dream (I THINK…I HOPE) is that they truly underestimated our capacity for political resistence…the sleeping giant is getting to his feet….listen to the rumble, listen to the roar….
The dealers will get paid. There are a lot of requirements for documentation as you might expect from a program that reimburses this much money. The dealerships are having to scan a lot of documentation and make sure everything is correct but in the mean time they’re placing orders for new inventory, salespeople are making commissions and the money is moving through the economy. It’s really a very efficient way of stimulating the economy. Full disclosure: I work in the auto industry and my father-in-law owns a dealership.
Imagine that! Another government program that is FUBAR.
Question for Paul in MI. Where will your stimulated industry be after the program ends when the taxpayers get fed up with buying cars for their neighbors and when no one is in the market for a new car because of this artificial demand? Why don’t we spend a little money to prop up the grocery business, eh? Maybe the government will start a plan to help me buy some new tires for my truck, since it needs them. What you see as a “very efficient way of stimulating the economy”, I see as just another open ended socialist Ponzi scheme.
#8 Jim
My point of view is that the US auto industry is in permanent decline at this point. Long term, there’s no reason to pay American workers high wages to build cars when Mexican/Chinese/Brazilian workers will do it for 1/5 as much. So basically, it sucks to be me and everyone else in Michigan. The choice at the moment is whether to let the auto industry crash and burn or deflate slowly. I would argue that more economic damage would be done by the former than the latter. As long as we’re boosting aggregate demand with deficit spending (and most economists agree that it’s a good idea during a severe recession) I don’t mind seeing it benefit the automotive industry.
As far as the grocery business we’ve been propping it up with agricultural subsidies since the 1930s. These subsidies are basically just transfer payments from taxpayers to farmers which has the effect of lowering the prices you pay at the grocery store. Republicans won’t get rid of them because farm states are generally red states. Democrats won’t get rid of them because the overall effect is progressive, in that poor people don’t really eat less than rich people but do pay fewer taxes. Whether or not it’s a good idea is up to you.
Due to the nature of the government bureaucracy, the Cash For Clunkers might very well do in many dealerships since the program–like any government program–is too slow to actually be effective; I do not see many of these dealerships getting any money back in the coming months. Heck, it could take YEARS for the money to come back. This proves what a disaster the Cash For Clunkers is…
Am I surprised by this? Nope.
Typical.
I still think car dealers are in the same moral class as journalists, plaintiffs’ attorneys and squeegymen. My bet is that some/many/most have been able to raise the price of the new car enough to get a piece of the government subsidy.
That the dealers can’t get their money immediately will allow them to justify other sleazy actions. For example, there must already be truckloads of clunkers headed for Mexico (maybe, Cuba) where they will be repapered and sold as high quality used cars.
Fortunately for the car dealers, no IG will ever examine the details of this scam!
Paul in MI:
Salesman are making commisions and new autos are being produced but if Uncle Sam doesn’t hurry up with the cash many of those salesman will be out work because their employers will go bankrupt. I am sure that the effected salesman will have been happy to live without these upfront commissions. In addition, to the extent that C4C only brought future sales forward they be seeing leaner times in the future
Also, this increased production today will result in reduced production tomorrow unless the economy revives. Since most of the cars have been bought on credit sales of other products will be reduced because of the new payments. Credit is not income, it is only a future claim on income.
#13 Jerryofva
I agree with almost everything you said. Except for the idea that “to the extent that C4C only brought future sales forward they be seeing leaner times in the future”. This is a distinct possibility but it’s the same threat posed by any expansionary fiscal policy. Any time you expand the deficit to get the economy moving you run the risk that it won’t work and that even if you don’t get the benefit you will still pay the cost. This is true whether you stimulate spending or cut taxes.
I can’t speak for dealerships across the country but I know that my father-in-laws business has started to get their payments already. The biggest problem was getting the salesmen to turn in all the correct paperwork.
a hastily implemented government plan not running smoothly?
i’m shocked. SHOCKED i tell you!
Government spending has never stimulated the economy. If failed in 1930s, it failed in Japan in the 1990s and it will fail in the US now.
Government spending must equal Taxes + borrowing + monetary creation (See Robert Barro). The government is merely robbing Peter to pay Paul. If the Peter is a foreign borrower you may get some stimulation but other hen that you either get nothing or inflation along with the nothing.
How can we get the auto industry back on its feet? Naturally the answer is to put Republicans back in charge. What could possibly go wrong with that?
(un)Seriously:
Well at least Republicans are more likely to drive an American Car then elitest Democrats
#16 jerryofva
Deficit spending during WWII created the modern American economy. The government spent more money than anyone imagined was possible. We put people to work building things with little economic value (guns and tanks have some value but not as much as tractors and shovels for example) and spent without regard to how we would pay for it. We ended up with the most powerful military force in human history, the atom bomb, and the largest manufacturing economy in the world. It turned out that the economic growth far outstripped the debt incurred creating it and the majority of the debt was paid off by 1960. It’s no different from taking out a loan to start a small business, you’re betting that you can make enough money from the business to pay for the costs of the loan.
In today’s paper, they report that the original staff of 350 was overwhelmed, so they’re adding 1,000 more bureacrats to handle the paperwork crunch. Now that’s what I call stimulus! What a productive use of tax dollars for long-lasting job creation!
The news reports that GM is increasing production because of the cash for clunkers. Let us see: the gov. owns 60%+ of GM and offers a $4,500 rebate on new cars. That is how a monopoly should work. To hell with reinvestment funds and profit, use taxes to fuel the company! I paid for your car and the pension fund and I didn’t even go shopping. What will they think of next?
Government spending per se had little to do with the recovery. European economies have stagnated for the past 20 years as the governments share of GNP has reach WWII levels. Unemployment fell because we drafted 12000000 men into the Armed Forces not because of the increased war production.
You are just making the mistake of the Broken Window fallacy
Paul in MI – Your analysis of the boom of WWII is flawed.
The boom was not a result of just investing. The fact is, we had an incentive to build up our manufacturing capability. We were able to do it because of the war. We did it by setting the wages of every single job. We also vastly increased the labor force by adding women to it (at far lower wages than men), while the young men went off to fight. People moved to 12-hour days. Then there were the taxes, and people buying War Bonds.
These were all special circumstances. It was a righteous war, but it did cost us a few hundred thousand casualties. We bombed enemy nations to destroy them and kill vast multitudes of civilians. Now, I’m not against that, whatsoever. Elections have consequences and all that.
What I’m saying is that we were able to do it because of special circumstances that we just can’t willfully reproduce. It was forced upon us. The boom was our reward for the sacrifice, the terrible price we paid. To choose this “option” is morally unconscionable. It was not free. It was not just investment. We paid a terrible price. The enemy paid even more for their folly. It was investment of money, blood, and carnage.
Paul in MI – I also disagree about the death of the auto industry. In MI, yes. The unions there have anti-trust exemptions. They are albatrosses around the necks of the auto companies. Their political power has given the Dems a complete lock on the State of MI for the last 50 years.
MI is what Dem policies look like in the long run. When the economy was moving along, MI was a one-State depression. Now it is a disaster zone. The auto companies should have been moved into bankruptcy right away, without government bailouts, but that would mean the cancellation of union contracts. Can’t have any of that! Doing so would have solved most of their problems right away, by doing away with the union costs.
The rest could be solved by easing regulations and getting rid of corporate taxes. The “Fair Tax” would solve that problem. We’d still collect our taxes, but at point of sale. We would also, thereby, tax our competitors at the same rate as our own companies. The effect on the import/export equation would be dramatic. It would mean a return of many manufacturing jobs to our shores.
As for farm subsidies, i’m against them, but I see their necessity. Other nations subsidize their farmers, and so we are forced to as well. Getting out of multi-nation trade agreements would help stop this. Every trade agreement should be done on a one-to-one basis. this way, if someone cheats, we don’t have to address a group and ask for sanctions. We could retaliate right away. Having some trade guys who know how to negotiate a proper deal would help, too. I’m sick of guys who make bad deals so they can claim they “got something done”.
#3: “And they want their hands on healthcare…….”
Right, Mr. Moribund. And when it comes time for Medicare (if it isn’t time already), I’d throw the benefits back in their faces!
“When hearing of these documents, NHTSA quickly posted an advisory on its Cars.gov website for consumers to not sign contingency agreements and that the dealer must allow the customer to take immediate possession of the new car if it’s in stock.”
Doctors, hospitals and insurance companies beware. If the government takes over more of healthcare, you too will be forced to provide care for patients, even though you will be stiffed by the government.
I’ve owned something like seventy different cars in my lifetime, and there isn’t one of them that I hated enough to give to the government to have its engine destroyed.
The c4c program makes me sick. I won’t be setting foot or wheel in any new car dealership until after it is over.
As time goes bye business will wake up to the numerous pitfalls of dealing with socialistic business wannabees. Promise the world then endure excuse after excuse as to why it didn’t work and you have caused the problem. When the government is telling you they have a solution turn 180 degrees, you’ll probably find the right answer.
I have a friend that works with car dealerships. I guess the dealerships are supposed to render the cars in-operable (which is dumb in itself, a lot of people could still use these cars) after they are traded in for the program. A lot of dealerships are saying that they will not render the cars in-operable until they are payed because they are worried they will never get their money.
I have an older car that I was going to put up for sale. It needs a little work, but runs great.
When I got wind of this program, I decided to wait a bit before putting it out for sale. First, because I didin’t want someone buying it for a trade in then it gets destroyed, second, I figured that at some point soon, people are going to be looking for used cars because there will be few out there, so I can then (hopefully) get more of what the car is worth, and I can be assured it will be going to someone who actually wants it.
#29 Jesse -
Without mentioning names, I know where about 60 “Clunkers” are sequestered waiting payment from the “CARS” program before blowing up their engines. I don’t blame the dealer at all, he can at least partially recoup by selling or rationally dismantling the trade-ins.
Put it this way, Manufacturer Rebates – Pre Clunker Program – were handled very efficiently by the manufacturer crediting the Dealer’s Parts Account with the ability to “charge back” fraudulent claims. Credits were generally “on account” within 10 Days. With the Clunker Program and “EFT” Banking – Dealers COULD have been paid subject to charge-back or even Federal Penalties for Fraud for deliberate falsification of transactions – penalties FAR harsher than $4,500.00 per vehicle rewards. Of course, nobody in Washington thought that part out – so we have another program that is in one way or another “FUBAR.”
-S-
To us doctors who have to deal with the Government everyday, with Medicare and Medicaid payments, we laugh and say “Welcome to the club! What did you expect?” We routinely wait months, if not a year for government payments to us. Just wait until you start getting “denials” and the government demanding their money back- with interest.
The 3 billion dollar cash for cars program was a major failure.
Here are the facts:
700,000 cars sold under the program with 2.8 billion given out.
GM reported 1300 jobs created. None reported from Ford or Chrysler.
61% of sales to foreign owned companies.
If we paid each new employee $75000 per year, we would create $95,000,000 in total salaries.
We probably created $175,000,000 in sales commissions.($250/car which is high)
States receive around 60,000,000 in income taxes
states receive 500,000,000 in sales taxes
We spent 2.8 billion to create 1300 non permanent jobs.
If those 700,000 cars saves 150,000,000 gallons of gas, we can possibly add another $450,000,000 savings for all consumers.
(assuming that they double their mpg efficiency). This is just a direct benefit to the buyer, so congratulations America, you just saved your 700,000 neighbors some gas money.
The far majority of the incentive went overseas.
You cannot recognize ANY other benefit. For example, an older car needs more repairs, therefore you spend money locally. Newer cars have far less repairs, so the cash for clunkers took at least 700,000 repairs out of the economy.
There will also be less parts required so lets just say the support industries break even.
So as I see it we paid 2.8 billion for 1300 temporary jobs.
We created more jobs for Japan, Korea, Germany.
We paid 2.8 billion to save 150,000 million gallons of gas.
So with all our economic issues, how can we expect them to cut health care costs.
Please tell me, what did I miss.
one final thing.
The largest investor in North Korea is Hyndai.
Our government indirectly supported N Korea.
Will be very interesting indeed to see how the auto industry in US holds up now the cash for clunkers program has ended. Quite a few Australia eyes will be watching closely I think.