Cash for Clunkers Part II- It’s All Clunked-Up

Travis's picture

Just yesterday I wrote about the government program CARS- better known as “Cash for Clunkers,” and no sooner did I hit the old “submit” button to the blogsophere; well, the proverbial shit just about hit the old radiator fan. 

Hours later there were reports that the administering NHTSA changed some of the combined fuel ratings for a handful of cars; basically, making some prior deals involving cars (I’m not sure which ones) null and void.  In order to get the rebates, the old clunker had to get a combined EPA rating of 18 miles-per-gallon or less.  Cars rated 18 mpg or less were now not deemed a “clunker” putting the deals in jeopardy.  The government...  "Takes it back."

I heard of some people getting notices from the dealers (who actually fronted the rebates) to either come-up with the additional $4,500 they thought they would get from the government; or turn-in their shiny, brandy new car they had taken home just a few days prior.  These were cases, of which, last I heard were “under review.”  Never a good thing.

Wednesday night I did some investigating. 

I went to my favorite local car dealership (names and brands un-important) and struck-up a conversation with my good friend the general sales manager- the “desk guy.”  These people actually like it when talking to them doesn’t involve squeezing every last penny out of a deal (that really isn’t realistically there); so, when they’re not working, working hard for your money (read, to get your money), they’re an honest bunch.  Really. 

Bottom line he, the manager had nothing but kind things to say about the program.  “Sure, it’s gotten people in the door, but what a f’n nightmare…” His words, not mine. 

“The paperwork is crazy, they got you jumping through all these hoops…  It’s total a fiasco.”  A fiasco.  I’m not surprised.  But the car business thrives on this kind of stuff- some would even call the car promotions business “controlled chaos,” at least it should be if it’s done right.  And that’s just what “Cash for Clunkers” is proving to be.  Chaotic.

I learned some finer points about the program that aren’t clearly drawn-out on the extensive national websites and the myriad of car commercials, flooding the national TV and radio slots.

As described in my prior blog, the money to the buyer is an instant rebate fronted by the car dealerships to be later reimbursed by the NHSTA/US government upon paperwork processing (yes, the paperwork is proving to be a nightmare, but it’s the government, do you expect it to be pleasant?)  What they don’t advertise is- and this is fairly obvious to those in sales- the rebate is taxed- so, you’re going to pay the sales tax on the $3,500 or $4,500, okay, that’s not all-that bad.  But here’s a kicker- the dealer principal, the owner who fronted the rebate money, basically out of his pocket, is actually getting paid back, but taxed from the government as if it were income.  To my un-accountant-ass, this sounds like a bit of double taxation?  Or even if it’s not technically- the government is making out quite well giving away money as part of a “stimulus” package. 

So, the state governments are making out- they’re getting their taxes from the consumers, and the state and federal government is getting their money out of the dealership owners’ pockets.  Draw out your local tax books, and you do the math. 

None of this really surprises me, but it does further reinforce my adage about sales, and the government for that matter- “they get their pound of flesh…”

But here’s a fun tidbit about the CARS program- dealers are instructed to destroy and disable the clunkers before they’re towed-off the lots.  (Clearly, someone in Washington has a brother-in-law in the wrecking business, because these guys are going to make-out like bandits!) but disabling involves either running silica (like a sand slurry) in the engine to grind it to a halt, or simply draining the oil and revving the mill till it blows-up.

I immediately quipped “can I do one… please…” with a gleam in my eye not since seen since Tom Green in Road Trip, asked Mitch the python to “unleash the fury.” 

Okay, back to business.  According to reports published Thursday night (tonight, just hours ago!)- the government plans on halting the CARS program, amid concerns that the program may be running out of money too quickly.  As of midnight tonight, the program is stopped- till someone puts the oil back in.

The Associated Press reports- through late Wednesday, 22,782 vehicles had been purchased through the program and nearly $96 million had been spent- about a tenth of the billion they want to spend till November 1.

“But dealers raised concerns about large backlogs in the processing of the deals in the government system, prompting the suspension…  A survey of 2,000 dealers by the National Automobile Dealers Association (NADA) found about 25,000 deals had not yet been approved by NHTSA, or nearly 13 trades per store." 

The report raises concerns “with about 23,000 dealers taking part in the program, auto dealers may already have surpassed the 250,000 vehicle sales funded by the $1 billion program.” 

Clearly- the government had overestimated the dealers’ ability to push paperwork.  If you’ve ever seen the paperwork required to put a car on the road (or take it off) you wouldn’t be scoffing.

So, as I write to you all about this- the car manufacturers are still inviting, over the radio and television, to come in, buy a more fuel efficient car and get a load of money for that load of crap you call an old clunker.  

You have about two hours to do so.  You better hurry.  Because like everything else- “it’s for a limited time only.” 

 

(Since I published this post- the White House has stepped-in at the eleventh hour; and while not declaring the program "suspended," it's currently "under review..."   Buy, sell, trade your clunker at your own risk...)

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deadhead's picture

I'm very confident that this type of bureaucratic nightmare won't happen now that the US Government is the primary owner of Citibank.

Anonymous's picture

please click the beautiful ads for cars program on this page and support the cost of maintaining this website.

Anonymous's picture

"Ahh wahns ta git clunked up !" - Funkadelic

Anonymous's picture

Will these dead beats ever figure out that it's easier to just lower taxes. Of course low taxes don't employ people to do busy-work.

Anonymous's picture

Oooh a laffer disciple. They need to raise the minimum wage!

SloSquez's picture

Confidence level going through the roof.  It must be all the discretionary income.  It's burning a hole.  I still like the ice idea...

orange juice's picture

This is sort of a weird program given that most of the fuel efficient cars are made by foreign co's as opposed to domestic car co's.  Seems like a nice way to fleece the taxpayer and send cash overseas.... is this a direct foreign subsidy or what?

Gilgamesh's picture

I think someone forgot to inform the Administration that this program has been successful in other countries because those countries had fuel-efficient cars readily available.  It seems the UAW woke up from their bankruptcy-induced coma yesterday and made some unpleasant calls.

aldousd's picture

Alex Jones? Is that You?!?!

Gilgamesh's picture

I'm enjoying the CARS ads on the both sides of this.

Ags Nightmare's picture

Sounds like the automobile version of the Making Homes Less Affordable cluster****.  Some of the stories I heard from people trying to rework their loan who have credit scores in the 700's and are current were ridiculous. Basically they were told by the bank, blow up your credit, stop paying, then come back and we'll see if you qualify. One person I know who "was current" and had good credit was told they could go into a forebearance program for four months to prove they can make the lower payments. Make's sense. You have been scraping enough together to make the higher payments and you have to prove to the bank you can make payments 500 dollars less per month before they will consider modifying your loan.( wtf ?)

I imagine the paperwork that goes along with with the loan modification programs dwarfs that of the government "step right up" and git yer car gimmick.

 

Gilgamesh's picture

Ready to go long IP on any new Government program involving "helping the American consumer."

KidDynamite's picture

so are you guys looking at how these numbers will juice the Q3 GDP, or the July/Aug durable goods orders? 

and on the other front:  do you think there's a chance that the dealers could get hosed - since they pay the rebate up front and then get reimbursed, but it sounds like it's already oversubscribed?

 

Anonymous's picture

lol, there was just a banner ad for the program at the top of the page.

Anonymous's picture

Yeah, I see it too. It's a Toyota ad!

EconomicDisconnect's picture

The term "mill" for an engine makes me think you know blueprints of breathers and all that.  Great post, but you missed the fraud angle.  Desperate dealers dug up cars fom the river to sell into this, otherwise they just EXPAND it.

Anonymous's picture

Hey I have an idea, these government guys did such a knock up job on this program why don't we let them take charge of something really important -- like healthcare...

Lothar the Rottweiler's picture

Give me a tuneup on my Subie OBS (wish it were a Rex Sti still) and I'll keep that thing running for another 100K miles at least.

This cash-for-clunkers is only going to help crappy auto manufactureres (sorry for the obvious).

I would love 4500-9000K off a stock Rex at +- 42K thanks a bunch.

The ricer crowd would go nuts, too, especially once they start looking for indy parts to updgrade their brand new Rexes.

Just a thought.

Anonymous's picture

KidDynamite is on to something there. This seems like a real cheap way to insure a positive GDP for Q3 or Q4. Only a billion for this program? That's a steal compared to the potential disaster for O if they can't get GDP to go positive real soon.

Anonymous's picture

it's going positive soon....tarp funds and
other bailout monies are being counted as
special line items of gdp starting q2.

dza's picture

I liked cash for clunkers better when it was called the Dow 30.

Ags Nightmare's picture

Travis, your last line 'for a limited time only' is fitting. I was watching cnbs and a congressman, I think it was La Hood was on pitching the program like he was Ron Popeil selling the pocket fisherman.

jmoney's picture

And BO wants to put these people in charge of your healthcare system!  Also, don't forget the "inevitable insolvency" of the USPS and the difficulties in launching the mortgage servicing program!

 

Good times ahead thanks to B. Hussein Obama!

buzzsaw99's picture

They give the banksters tens of trillion$, spend tens of billion$ bailing out the big three, then do a measley $1B auto stimulus. Congreff is uber-smart.

Anonymous's picture

trillions for wall street but not one red cent
for america.

aldousd's picture

You're still missing the point, as is the parent post, the 'bailouts' are using monopoly money. They're making your savings worth less and acting as though the companies in receipt of the money are now holding more 'wealth.'  They're just diluting all of our shares. This is not a bailout, no matter who ends up holding the fucking cash. It's not santa clause coming with toys from the workshop. there IS no way to do this 'right.'

 

edit: I'm not suggesting that they're causing inflation with money printing.. yet... but I am suggesting that they're fucking those of us who are holding money that would otherwise help us out in a deflationary scenario a little more than it will now.

dark pools of soros's picture

we are getting closer to total chaos in the financial markets.  The game seems to have different rules by different players on different parts of the field.  

 

No one really knows how hyperinflation is going to affect the world's biggest economy.  Market going up only because of bots, sheep 401k and people having no clue where else to put their money since gold is manipulated

im going to just close my shorts and hedge with canned food and ammo

 

 

Anonymous's picture

Wait until they take over healthcare.....this is a good analogy for the rationing that will go on there.....

Anonymous's picture

I hope this socialism experiment backfires. I do not need to buy other people their fucking cars.

Gilgamesh's picture

How do you feel about buying out their credit card debt and delinquent mortgages?

Anonymous's picture

Now that the Oh-man has pulled that demand forward what's he gonna do next quarter to keep his union employees working?

Anonymous's picture

Cash for stocks. If it ain't making 18% this year turn it in for C.

Gilgamesh's picture

Does the Taxpayers buying Treasuries count in the new GDP total? 

Anonymous's picture

If you're saying that from the dealer's standpoint the rebate is counted as revenue, that makes sense to me and i dont see a problem with that.

As for suspension of the program, if it does too well and juices car sales too much (ie: program funds are used up in a week), the comps for car sales with be awful (more awful i guess) going forward as people have pushed forward their car purchases. I can see the auto industry's fears of headlines ike "Car sales plummet without gov't subsidies"

Anonymous's picture

WASHINGTON, July 30 (Reuters) - The U.S. government will not suspend its $1 billion "cash for clunkers" auto sales incentive even though confirmed sales and pending transactions neared the limit of 250,000 vehicles much sooner than expected, an Obama administration official said on Thursday night.

Wax on Wax off
LMAO

glenlloyd's picture

I maintain that the program is ridiculous and only pulls demand forward for the period of the program and like accounting gimickry it's a one time deal. Once those cars are sold they won't be replaced down the road when someone would naturally replaced the vehicle or discarded it.

Now I've heard that in the legislation the dealers get to keep $50 for processing each vehicle but what ever they sell the vehicle for (salvage or scrap) goes back to the consumer as well.

Further, the EPA, the night before the program started, changed the mpg figures for about 100 vehicles (some up some down) that affected cars like the Grand Marquis, which went from a qualifying 18mpg to a non-qualifying 19mpg, so those people got screwed. Some of those people had already purchased vehicles under the pretext that they qualified.

As someone else mentioned, it's turning out, like most Govt. initiatives, to be a huge clusterfuck.

Nice to see our reps in DC wasting valuable tax payer $ and time arguing over a program that will fail miserably. Guess it's par for the course with this Congress who apparently thinks that thrashing about qualifies for actual productive work.

Didn't we give (forgive) enough tax payer dollars to the auto industry yet?

Anonymous's picture

What I find funny is that whenever crisis arrives, buying a new car is the proper thing to do. Arab terrorists crash airplanes into big buidings, go buy an SUV. Financial terrorists crash the financial system, go buy a new slightly less wasteful car!

2001 saw interest rates on cars go to zero. In 2009 we get 0% interest plus money from the gubmint. What are we gonna get in 2017? I hope it's jetpacks...

Anonymous's picture

Free RFID implants

dark pools of soros's picture

only for a limited time.. and then they'll figure out how to make you pay for it

 

so rush to get it free while u can!

Anonymous's picture

This thing just wreaks of fraud, abuse, scandal. That's why it's being shut down - not for lack of funds. The government is expecting honesty from car dealers - CAR DEALERS of all people!

dark pools of soros's picture

true, whos to say Jo Bucky Dealership who owns a used and new car lot deals with Becky Sue's Dealership who has the same set up and they just churn away their old crap for free money??

 

they can forge the names and history and blah blah like they always do 

 

 

that said, the idea is fine, hardly funded enough though.. i guess they were scared of fraud too. The government loves fraud so not sure why they dont just run this up for a while?

Anonymous's picture

This latest stimulus bill debacle just might eat up the last remaining crumbs of Obama's political capital - and credibility.

Anonymous's picture

about $650B for defense. hell ,just borrow it from the printing press guys to fight wars that never end, chasing enemies that can never be found.

Anonymous's picture

Any savings will be eaten up in depreciation. Check out Edmunds True Cost To Own. Also add in loan interest and full collision coverage. Factory tires also wear at a quicker rate and will need to be replaced around three years from now. All oil changes and maintenance will need to be done according to manufacturers standards within warranty period. The average person with break even on this program. The environment will benefit slightly. No guarantee people are purchasing vehicles with MPG figures that dwarf their clunkers.

i.knoknot's picture

A coupla fine folks have already mentioned it, but it bears repeating as a 'tool' for the cocktail parties where Obama folks gather:

 

  "and you want this bunch to manage your kids' vaccines, or your grandma's pacemaker?"

 

We gotta be vigilant, folks. They've got the Lame-Stream-Media and the thirst for power on their side.

agrotera's picture

Yea, Travis, please ask if i can do one too!

...hand over the approval process to S&P--all paperwork would either be approved or denied--they just have to be told what to do.

Anonymous's picture

Cars are a human right! OBAMA ARE YOU LISTENING?

Anonymous's picture

hehe, right on. If the government doesn't do anything about the rising cost of cars they could triple in price over the next twenty years. Now they already have GM, and thats goin pretty well, they just need Ford. That should result in the fucking utopia of my dreams. I'll drag my fucking tail pipe to the doctors office where i'll take a goddamn number and be told to piss off cause i'm not worth the procedure.

Anonymous's picture

this is new deal redux 2.0.....just as socialist fdr forced the destruction of crops and livestock when people were going hungry, odumbo comes out with a program to kill cars in order to spur demand....what a boob.