Cash for Clunkers Could Be Done or on Hiatus
July 30, 2009
The Department of Transportation (DOT) reportedly is suspending the Cash for Clunkers program, as it is running out of its $1 billion allocation.
The DOT, which administers the program, hadn't confirmed publicly the move but the agency had informed Congressmen and dealer groups of the action. What's not clear is if it will end completely because it is, indeed, out of money, as dealers and dealer organizations suspect, or will be suspended as the agency calculates how close the program is to the $1-billion mark.
From the start, the program called for a November 1 expiration or the depletion of the $1 billion in funding. It became clear the program would run out long before November 1, but no one expected it to run out of money in the first week.
As of Thursday morning, the Web site for the Car Allowance Rebate System (CARS) showed $779 million of the $1 billion remained. The roughly $220 million used represents transactions dealers have submitted for government reimbursement and administrative costs.
But dealers think the CARS.gov gauge is actually on empty. Dealers and dealer organizations expressed their concern to government officials that they had far more transactions in the works for consumers to trade their clunkers for more fuel-efficient vehicles than the program had in funds. Dealers feared they would be left holding the bag for the vouchers of up to $4,500 if the government funds ran out.
On Wednesday night, sources said the National Automobile Dealers Association surveyed its dealers to gauge how many Cash for Clunker transactions they had in the works. The average number of working deals for the 1,900 dealers who responded amounted to nearly 14 transactions, with more deals qualifying for the top $4,500 voucher than the $3,500 voucher.
Of particular concern to dealers is the fact that they must destroy the clunkers and provide proof they have been destroyed before they can even apply for the government voucher. If the money runs out, the dealers must honor the deal without receving the reimbursement. -- By Michelle Krebs
Posted by Michelle Krebs at 3:33 PM under Featured , News | Comments (3) | digg this | Seed Newsvine
I probably messed up the math, but at a 10m sales rate for the year, with 6 sales days per week, that is about 32,000+ cars/day sold in the US. The CARS program will support a maximum of 285,000+ cars if everyone only gets $3500, and 222,000+ if everyone gets $4500 (so the actual number lies somewhere in between). At around 32,000+ cars/day, that translates into 7-9 days of sales if every car purchased qualified for CARS. If only half qualified, then that would be 14-18 days.
Since some dealers were providing the credit in advance (my aunt did a deal on a Toyota, and got the CARS rebate advanced by the dealer about a month before the program started), that would reduce the time it would take to deplete the money. It appears that there was some pent up demand with deals done in advance based on earlier drafts of the rules.
Either I missed something in my numbers (or interpretation therein), or someone didn't bother to check their math to see how much of a difference this would make, or how long it would likely take to burn through the money. It's not surprising, though. Many people don't bother to see how something "scales up/down" in practice.
Posted by: pushrod | July 30, 2009 at 5:23 PM
This is going to be interesting. I think they'll have to re-launch the program with a real-time encumbrance system, so that the deal is logged in and funds are automatically allocated to it subject to later auditing. It's sort of like what we do at work when we have to travel for business--we file a travel authorization request, which encumbers the necessary funds immediately and prevents them from being spent on something else, and when we return we fill out an expense report and get our reimbursement, plus or minus any adjustments.
Despite the impossible deadline imposed by Congress, NHTSA appears to have given a lot of thought to the eligibility verification process (though that was partially scuppered by the EPA's ill-timed revision of the mpg tables). Let's hope they can now use this "hiatus" to think through the accounting, thus regaining the trust of the dealers. Then C4C-II can resume in a few weeks, with whatever funds remain.
Posted by: stephen987 | July 30, 2009 at 6:22 PM
The government screwed up. Again. What a surprise.
It doesn't matter, because they will just print some more money to keep the program going.
I hope people are happy with their new cars. Just wait and see what the default rates will be on the new loans!
Posted by: billddrummer | July 30, 2009 at 7:34 PM