Thursday, July 30, 2009

Cash For Clunkers

For those who aren't familiar with this federal program, the idea was to get older cars that got poor gas mileage off the road by providing an incentive of $3,500 or $4,500 depending on how much better gas mileage the new car purchased in its stead would get.

Well, supposedly this program has been a wild success. So far nearly 23,000 cars were bought under the program. Congress is now putting the program on hold.
Congressional officials say the government plans to suspend the popular "cash for clunkers" program amid concerns it could quickly use up the $1 billion in rebates for new car purchases.

The Transportation Department called congressional offices late Thursday to alert them to the decision to halt the program, which offered owners of old cars and trucks $3,500 or $4,500 toward a new, more fuel-efficient vehicle.

The congressional officials spoke on condition of anonymity because they were not authorized to speak publicly.
The whole idea was to get the clunkers off the road and to spur car sales. Suspending the program does neither, particularly because something seems quite fishy. That there is a backlog shouldn't be all that surprising. The program has changed several times and the online systems used by car dealers hasn't been handle the volume, even though the overall US auto market in the US is 20 million sales every year.

This is a $1 billion program, which is supposed to run until November or until the $1 billion runs out. If every vehicle rebate delivered is $4,500, that means that 222,222 vehicles would be purchased with the rebate. They're suspending it with 10% of that figure underway?

Something is quite fishy here.

UPDATE 7/31/09:
I see that accounting isn't a strong suit in government. Someone didn't figure out basic math when it comes to the cash for clunkers program, and news that the program may be suspended even though only 10% of the $1 billion program has been spent so far raises plenty of questions.

The program was supposed to result in anywhere from 222,000 to just about 300,000 rebates issued depending on how many people took advantage of the maximum rebate of $4,500 or the $3,500 rebate.

So, they suspend it with only 10% used because of a backlog? That smells fishy. What's the size of the backlog that would result in a suspension?

And what happens to all those ad campaigns issued taking advantage of the cash for clunkers program. You know the ones - like Chrysler's cash for clunkers matching rebate ad.

Moreover, why did no one expect there to be a rush to take advantage of the cash for clunkers program? Moreover, the government's website to get the rebates makes the program exceedingly difficult to fulfill the rebates.

It also provides yet another lesson in government operation. If you think that the government is going to provide efficient service, you'd be wrong. Just imagine what will happen when the government health care programs are implemented. You can't suspend that program because of a backlog of service - which can be expected.

This report from CNBC claims that nearly 250,000 vehicle rebates were issued, which means that the $1 billion has been expended in less than a month. If that's the case, then this program met its goals and that the program should end.

And who would be on the hook for rebates issued that do not get honored or paid in a timely fashion? It's the car dealers.
Car dealers whom we had been interviewing over the last few days told us that a lot of consumers who came into their showrooms did not fully understand the program — though apparently enough understood it to take advantage of it quickly.

They also said they were worried about whether the government would reimburse them for the discounts they gave under the program. The plan gave discounts to drivers trading in their old vehicles of between $3,500 and $4,500 toward the purchase of new cars and trucks.

“I’m waiting for the government to reimburse me for over $80,000,” Barry Magnus, general manager of DCH Paramus Honda, in Paramus, N.J., told us. He has completed deals on about two dozen cars, advancing his customers the rebates of between $3,500 and $4,500 each while he waits for the government to repay him.

“If you’re a business that counts on cash flow, which is important to us and every other dealership in the country right now, we’re hoping to get that reimbursement,” he said. “How long will it take for the government to possibly run out of money?”

It’s not clear how many people actually did take advantage of the program. On Thursday morning, the program’s Web site,, said that 22 percent of the $1 billion had been spent. But the National Automobile Dealers Association warned that the program had burned through almost all the money and said the government could not keep track of how many deals had been sealed, prompting the suspension.
It's simply astounding that no one seems to know the status of the program and whether the money has been spent or not.

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