What is Cash for Clunkers (C.A.R.S.) Doing for YOU?

[Jon Groenig]

What everyone seems to be forgetting is that this is not a dealer or consumer issue, all the problems start and end with the government. If dealers had received payments within the 10 day time frame they had been told, every single vehicle would be in the possession of the consumer. Unfortunately many dealers are out thirty days on their submissions and still have no money to show for it.

Now let's put this in a context everyone can understand, let's say a good friend approaches you and says they need to borrow 30% of your paycheck from you, but they assure you they will have the money back to you within 10 days. Now 10 days have passed, no money, 20 days, no money, 30 days, no money. Now you are short on covering your expenses and another person comes and tells you they also would like to borrow money from you, do you think there is a chance you are going to take steps to cover yourself this time? It's no different than what the dealers are doing by asking the consumers to cover the shortfall if the government doesn't pay out.

I think the reason so many consumers are upset about being asked to cover the $4,500 is that they think there is a good chance the government won't come through with the money. Think about it, if it is a for sure thing, why would anybody be concerned that the $4,500 note might come due? So in reality both side have the same exact fears, that the government will end up not paying out.

 

[Ann]

Jon- Your analogy is okay for personal transactions- one can make a choice to participate in loaning money out to a friend or not. This is a business situation in which rules and laws are involved. The choice of the dealership was to be involved or not in the program. When the dealership opted to participate they were agreeing to abide by the rules. There appears to be dealerships playing by the rules and dealerships which are not. I can understand that the dealers who submitted things that are valid and done in a timely manner are rightfully frustrated. I almost have that situation except that the dealership is not in total compliance by not accepting to physically take my clunker and coming up with a "you pay me if this isn't approved" agreement weeks after the deal was signed. I wouldn't choose to have a friend who acts that way. Yup, the government is definitely harming the entire process by their own noncompliance of what they stated would happen regarding approval and payment. One could feel pretty "friendless" in this crowd.

If the car is paid to the dealer with the exception of the government voucher doesn't that help their cash flow?

When manufacturers like Toyota offer (I believe this was made available August 17)to front the dealers the voucher differences, why don't dealers take that on and participate in an opportunity to develop good will with potential repeat customers?

 

[Chris (blog)]

I seems this program has really become a mess. I am curious, to the dealers out there – if this program were to be offered again, would you participate or avoid all together? Is all of this mess worth the extra sales? In other words, has the “gift horse” that government has handed out to you too (I assume Net Sales for most dealerships benifited greatly, although I do not have any data to back that up at my fingertips), to the dealers become a “white elephant”? Or is it too early to tell (as in you do not know if the government will actually pony up what they may owe you)?

 

[Charles Gallaer]

@ Chris, I work for a multifranchise dealer in VA. The 'front end' of the program was a phenominal success(i.e. stimulating customer demand and sales). The folks that purchased from us were individuals who rarely buy new vehicles and keep the ones they have forever so I don't think this program necessarily pulled ahead customers from the upcoming months. Their vehicles were truly clunkers and I couldn't have given them a trade in value anywhere near what the government offered. Virtually all had outstanding credit and most paid cash for their new vehicles. The 'back end' of the program (i.e. claim submission and claim payment) has been challenging to say the least and has been the focus of extensive reporting through various news sources. The demand on our personnel and the time that it takes to submit a claim is unacceptable. The lack of integration between the EPA's database and NHTSA's database pertaining to vehicles built is also unacceptable and created major headaches with claim submission. I believe the government had the wrong department (NHTSA) administering this program as it is miniscule in size and lacked any experience and infrastructure with processing payments. These factors have lead to the existence of a 'claim purgatory' that claims live in for weeks on end, neither rejected nor paid. We believe that eventually our stores will be paid for all of our eligible claims and would participate in the program again as long as our theory holds true and the government can streamline the claim submission and payment process.

 

[Ann]

Charles- are you able to determine or have heard of how many claims per day are being decided as approved or at the very least processed?

 

[Charles Gallaer]

@ Ann, I would contact the General Manager of that particular store and let him or her know you intend to contact NHTSA (at the 800 number on the cars.gov site) and let them know about the problem your facing. Contacting the manufacturer is pointless as each dealer is independtly owned and operated. The fines that are out there for not complying with the program exceed what the value of the rebate is, so s/he (the GM) has an incentive to try to make things work without involving the government. Although the dealership has the right to ask you to sign an agreement at the time of purchase to repay the government rebate if they do not receive payment from the government (not sure if they can ask you to sign this after you agree to the deal and have signed all of your paperwork already)and you have the right to refuse to sign it and therefore not do busines with them, they cannot hold the vehicle pending payment from the government or refuse to take your clunker at the time you consumate your transaction (sign the paperwork). If they have your title as you said they do and you cancel the deal, you may have recouse if they have already wrote on the title noting it as a clunker (a requirement for claim submission). In doing so they would make your vehicle have a 'junk' title thus dramatically reducing the value of your vehicle. I'm sorry that you're having these difficulties and I hope the store you're working with can resolve this issue quickly for you.

 

[Charles Gallaer]

@ Ann, the government will release data pertaining to nationwide claim submissions and payment. For the deals that we have done under the CARS program, we haven't been able to figure out a pattern or find any type of cadence as to which claims are selected and when our claims will be paid. I think this is because of the sheer volume of claims that NHTSA and their contract employees are processing throughout the US. Initially it was a nightmare to submit claims because of site failures (crashes) and problems with the information that the government had (referenced in my post about not sharing the EPA's vehicle database). Many will sit in a pending status for quite some time and then are rejected for a clerical error or a document that didn't scan properly. We cannot edit the claim until it is rejected even if we know we made an error in submitting it so the claim will then take a much longer time to get paid. Ultimately, unlike a manufacturer rebate which has a predictable timing from submission to payment, the government rebate submission to payment schedule is unclear and is why customers like you are having difficulties completing your transactions.

 

[Ann]

Thank you. I had been told by the Sales Manager that information from a conference call with the NHTSA noted that 150 vouchers a day were being processed. That seems too ridiculously small an amount for what is now a 2000 person effort to handle the paperwork. Just having information that is valid would be helpful.

Would you mind helping me understand how a customer paying for all but $4500 of the vehicle cost does or does not make any difference to a dealer?

My situation includes the dealer not wanting to see us with our clunker or our payment, beyond the deposit, until the deal is approved.

 

[Charles Gallaer]

@ Ann, no problem. Our business is extremely cash intensive. Most dealerships in the US finance their inventory with a bank (either an independent bank like Wachovia, Bank of America, etc or a manufacturer's captive finance source like Ford Credit or Honda Motor Credit). The bank requires payment in full from the dealer when the vehicle is sold by a certain period of time. If this does not happen, the dealer can lose its source of inventory financing and could have to close its doors. Furthermore, the dealer is subject to spot checks by the bank and if the car isn't present most banks require the dealer to pay it in full irregardless if the dealer has received full payment for the vehicle. Here's an example: $10,000 car - $4500 rebate means customer pays $5500 for vehicle. However, the dealer has to pay the bank $10,000 for the vehicle so from a cashflow standpoint the dealership has now gone backwards $4500. This happens every day with manufacturer rebates. However, those rebates have a very simple claiming process with a defined payment schedule. This isn't the case with the CARS rebates. One claim might not seem like alot of a drain but taken with 50 or 100 others and this can create a serious cashflow problem. At our stores we complied with the guidelines set by NHTSA and delivered the vehicles at the time of sale and took the clunker from the customer. Fortunately for us we have sufficient capital to do so and can wait for the government to pay us for our CARS rebate. It sounds like the place where you are conducting business saw that their exposure on the CARS program was such that they were uncomfortable with releasing more cars without receiving payment from the government and thereby having to pay the vehicles off with their finance source and having negative cash flow. This predicament placed them in an uncomfortable position between alienating customers by asking them to wait or risk further cash drain by releasing vehicles that they don't know when or if they will receive full payment for.

 

[Travis Thompson]

It seems to me that the Government is cherry picking the deals to see if they can reject them, they are skipping around in the most random of orders, there is no method to how they look at them, probably closing their eyes and pulling a number out a barrell, out of 85 total deals I have been paid on 7, however they reject 2 - 3 daily, and believe me I have had to call them( the government) to inform them that they made the mistake, not us on a number of occasions in regards ot rejections. It seems like they cherry-pick the rejections and leave the approvals to just a handful of people, its probably easier for them to kick it back instead of filing the paperwork to approve it and then when it gets rejected it probably goes back in the pool for some other poor guy to look at and do all the paperwork. Out of 10 rejections, only 4 of mine have been valid, after I finally get them on the phone and make them go over it with me, they say stupid crap like "you should have circled the dates for them to see" , this is crazy and my GM gets every rejection email and he thinks we're a bunch of douche bags shortcutting on the paperwork lol