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Cash for Clunkers Part II- It’s All Clunked-Up
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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I'm very confident that this type of bureaucratic nightmare won't happen now that the US Government is the primary owner of Citibank.
please click the beautiful ads for cars program on this page and support the cost of maintaining this website.
"Ahh wahns ta git clunked up !" - Funkadelic
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.
Oooh a laffer disciple. They need to raise the minimum wage!
Confidence level going through the roof. It must be all the discretionary income. It's burning a hole. I still like the ice idea...
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?
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.
Alex Jones? Is that You?!?!
I'm enjoying the CARS ads on the both sides of this.
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.
Ready to go long IP on any new Government program involving "helping the American consumer."
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?
lol, there was just a banner ad for the program at the top of the page.
Yeah, I see it too. It's a Toyota ad!
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.
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...
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.
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.
it's going positive soon....tarp funds and
other bailout monies are being counted as
special line items of gdp starting q2.
I liked cash for clunkers better when it was called the Dow 30.
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.
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!
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.
trillions for wall street but not one red cent
for america.
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.
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
Wait until they take over healthcare.....this is a good analogy for the rationing that will go on there.....
I hope this socialism experiment backfires. I do not need to buy other people their fucking cars.
How do you feel about buying out their credit card debt and delinquent mortgages?
Now that the Oh-man has pulled that demand forward what's he gonna do next quarter to keep his union employees working?
Cash for stocks. If it ain't making 18% this year turn it in for C.
Does the Taxpayers buying Treasuries count in the new GDP total?
yes they counted it twice
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"
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
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?
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...
Free RFID implants
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!
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!
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?
This latest stimulus bill debacle just might eat up the last remaining crumbs of Obama's political capital - and credibility.
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.
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.
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.
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.
Cars are a human right! OBAMA ARE YOU LISTENING?
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.
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.
Thanks for the post Cornelius. I enjoy your posts as they always seem unbiased and straight to the point.
But you have to think if the government can't get "cash for clunkers" right one can only imagine what they will do to our health care system.
Fuck the car dealers. Don't want to deal with the "f’n nightmare"? Then don't participate.
A buddy of mine traded in his "clunker" through this program a good week before the dealers' were even supposed have launched the program. Who knows what other fraud these fucks are working as part of CARS? ("Ooh, that's a pretty low offer...let me go talk to my manager. I'll see what I can do")
Should the gov launch this kind of program? No. But it's just more evidence that the whole model of car dealerships in the US needs be destroyed and rebuilt.
It costs far more in energy consumption and pollution making a whole new car when power, steel production, petroleum products and the rest is factored in. Better to just allow natural replacement rather some stupid government program to keep the NADA happy after closing down 15%+- of their members. Just one more gimmick to pump the numbers and boost "confidence".
This plan was one of the most ridiculous ideas I've ever heard of. If the government is giving people money to buy new cars, why didn't they give people money to pay down their mortgages too? This way, at least the banks get paid for some of the bad loans. Mind you, these are both bad ideas but the US Govt is in the bad idea business and if and when they come across a good one, they execute miserably. The issue with the cash for clunkers program may be that people are buying up old, worthless cars from junk yards for $1k and reselling them for $2k-$3k so they can be used in the program. I haven't heard of this happening but if I can think of it, I'm sure there are many that are doing it.
I agree.
I am kind of stunned to be honest. I was thinking back to early 2007 till' now and just reflecting (yes, I had to actually sit back and reflect) on all the stimulus(s)/TARP/TALF/Cash for Clunkers/Nationalizing (almost) every industry and everything else. Don't forget during the Bush administration they had that stimulus package that gave everyone (who qualified in the income bracket) something like 400 per person, 800 for married couples, and some extra for babies. The thing that really stuns me is how intrusive the government has become.
The idea we are a democracy and free market capitalists is really history. Over the decades we have become more of a socialized society. It wasn't untill recently that the velocity of this change started occuring, but it happened so fast I failed to realize how Marxist we have become. The thing that really slapped me in the face was that this is, in-fact, reality.
It saddened me and instilled in me a certain ammount of humility. We are faced with a dependency on foreign creditors, and without their continued purchasing of our debt we are doomed to inflation. But it doesn't stop at inflation, some of it expands to selling valuable assets, bowing to foreign powers, and even sacrificing basic services.
This is a truly incredible moment to live putting things into an historical context.
But what do I know? I'm a pizza delivery guy.
tried doing this. you can't.
wallstreetpro should rev the mill of a clunker for one of his episodes.
Deflation is here.
Lenders are not hiding, like they did during the Wehrmacht.
They expect to get paid...in full.
Is the H1N1 the new currency?
people should make their own cars and stop being pussies.
The US Government is a failed state.
I was watching some youtube videos on disabling aka destroying the engine on the clunker. After watching a bit I had a sinking feeling in the pit of my stomach about the destruction going on and the apparent glee from doing this. Such wanton destruction and most of these clunkers still looked serviceable and usable. What a waste!
Also, a car dealership isn't releasing the cars that the owners were supposed to take home until the dealer gets their money from the gov, tempers are rising!
What if these deals don't go through and your clunker is destroyed and no new car?
Glee...you want glee...I'll show you glee.
http://www.youtube.com/watch?v=Kz8wDqZiQxk
All of this is going to end up badly for this country. A country that encourages waste is going no where. Take a perfectly good car, call it a 'clunker' and instantly the masses are deluded. So 250000 idiots believed this BS and traded their 'clunker' for shiny new metal. There are too many packlids in this country who don't repair and reuse stuff, instead would get into deeper debt just because someone called their stuff 'a clunker'.
The next wave after Alt-A defaults -- CARS defaults! I'm sure the financing for these new vehicles is extremely selective....
Another thought, the "$4,500" is taxed both ways, the gov rebate certainly doesn't cover the whole purchase price of the car. Aren't we strapped with a humongous about of debt as a nation anyway?
It seems completely incomprehensible to be taking on more debt at a time like this.
1. Are car dealers any less shady in their business practices than WS Investment Banks? It's certainly taxpayer fund waste on a much smaller scale than what the Banksters are sucking us dry for.
2. I'm sure the gubbmint will royally screw up health care, because of all the special interest money pouring into health care "reform." Why do Scandinavian and most European countries have much better health care than the USA by every metric (infant mortality, longevity, customer satisfaction) at a MUCH lower percentage of GDP? Could it be because their systems aren't wholly controlled by Big Pharma, Big Insurance, and the typical assortment of money grubbing middlemen?
Just a couple of thoughts.
TD thanks for all the great work!!
THESE IDIOTS WANT TO RUN ALL OF HEALTHCARE!
"Oh wait, we have to take your liver back out because the allocation for liver transplants this month was exceeded..."
Don't worry, we'll ship in some doctors from ecuador who work for pennies on the dollar...or if the usd fails, crumbs on the loaf.
It is the sacred right if not duty of Americans to screw the government. As soon as the governement is involved everyones palm opens and every law and ethic go out the window. This is doublely true of businessmen who most always seem to forget must have to screw everyone they can if they want to be really sucessful.
Knowing this laws and regulations end up being complex in order to minimize the gamesmanship but that only makes the games more complex. So inevitably the US Government is often frightfully inefficient. Then too since there is a political party whose foundational principal is that the government can't do anything right do everything within their power to guarantee it doesn't.
In this program nearly one billion dollars will flow through middle class consumers to the auto corporations very quickly.
"there is a political party whose foundational principal is that the government can't do anything right do everything within their power to guarantee it doesn't"
HAHA you think there is one party that is better than the other?! HEHE the politicians will enjoy leading you to the abattoir.
Run sand through the engine until it blows up. I'm shocked that the Government still manages to shock me with their utter idiocy.
What's next? Government incentives for digging holes and then filling them back in again? Hopefully the shovel industry lobby isn't that powerful.
How many of these clunkers do you really think are going to be destroyed anyway?
OK folks... due to popular demand for government giveaways and snarky humor, I present Goldman Katz' application to participate in PPIP:
http://icanhasTARP.com/index.php?article_id=17
Once again your article is pertinent, timely and entertaining. Thanks again Travis.
If I can offer a dissenting view from the negative comments about this plan. Perhaps I can do this without being called a "shill" or "idiot".
The cash for clunkers program showed that there is pent up demand for cars, which comes out when the price is right. The program has also had the effect of reducing dealer inventories. That is a positive because car production is coming back online in the third quarter. The pickup is a good 500K units higher than Q2 production. The last positive coming out of the good response to cash for clunkers is that credit was available for these buyers. That is a material improvement from the lack of credit earlier in the year.
The bottom line is that this program has achieved its goal. I also would prefer that we did not have to spend tax dollars to spark demand. But we are where we are, and we have to fight our way out. Clearing out old car inventory will help.
I tend to agree that there is pent up demand at lower prices as "defined" by the amount of any given gov rebate and matching mfg reabte off of MSRP.
If true then absent the rebate(s) the selling price needs to fall. And since no one but a wall street bank can stay in businees while losing money that means the dealer cost has to fall.
But that would smell like deflation to me...and we knwo the Fed would not like that.
Pete
Lower prices release pent up demand huh?
What if we plotted a curve of pent up demand vs price? That's so innovative! I'll share my nobel prize in economics with you.
Well, the civility went out the window with this post. Too bad.
The missing piece is elasticity of demand. The CFC program shows that elasticity is greater than expected. Dropping price modestly created a great deal of demand. So those who thought that structural demand is only 10 mm on an annual basis should rethink their models. Cutting price has an inordinant effect on demand - not a small one.
prices were already low, pent up demand in a free market ultimately gets satisfied as people buy vehicles at the right price. The incentive did nothing more than encourage consumption now rather than later.
I contend that there is nothing greener than what's already been produced so to say that this program is a good thing is a fallacy. It's like believing that a weaker dollar will bring about exports, maybe for a short while but ultimately costs / pricing adjust to account for the weakened dollar.
I call the program a failure because it utilized tax dollars (we don't have) to remove potentially viable vehicles from the road, which regardless of polution levels is greener than building a new vehicle.
I'm not dissing your comments, mine would have been similar a couple years ago, but the reality of where we are now has altered my view significantly.
I can think of no reason whatever to do this program which is a idiot shill of a fucking taxpayer rip off government program.
So I guess I will have to disagree with the gentleman contrarian above.
There simply is no upside to any of this. The fact that people find upside in this type behavior is why communists and eco-fascists like Obama take over.
Point well taken. Now that didn't hurt. But if you post a contrarian point of view again, we will find you a force you to watch CNBC with your eyelids taped open.
God no, Please no!!!!
Thank you for the civilized post and the humor.
And thank you TD, Marla, and everyone else at ZH.
A toll booth in the middle of a(F ing) road causes tons more pollution and fuel waste than all the clunkers. But appearances are important...GO GDP !!!
HOV lanes are the biggest pollutant ever created. Up in Washington DC the roads are clogged day and night with millions of innocent slaves sucking up gas fumes for hours on end while the HOV lanes are completely empty.
Pizza Man, I believe Travis wrote this article, but I am sure he is greatful for the comliment. Do you deliver in 30 minutes or less? That pie really looks good.
I thought 'cash for clunkers' was for common stocks?
LMAO...very nice
I'm sure administering the gov't health care program will be no problem, though. Health care for 300 million people? That's easy. SELLING 250,000 CARS is hard...
You just don't get it. This is O's test model for health care. If the big O gets his health care proposal passed, old sick people will be designated as "clunkers", denied meds, and sent to the nearest hospital to be put down like and old terrier. This is just a test.
Will this involve government rebates back to funeral homes?? I think I'm going long Service Corp...........:-))
they can't even handle a $1B program...they wanna pass a trillion dollar health care bill.
House approves $2B for CARS
http://finance.yahoo.com/news/US-House-approves-2B-car-apf-1149411515.html
Spend..spend...spend. And you guys thought they were worried about running out of $1B
Germany got this right. Give 2500 Euros to anyone trading in a car older than 10 years. Just keep the metric simple. There is no requirement to buy a more fuel efficient car. Just any new car. The probability is very high that the new car is more fuel efficient than a 10 year old car, so this satisfies the objective to have a more fuel efficient cars on the road.
Foreign subsidies aside, I don't think it matters. Let the best auto manufacturers making the best cars win. That is the heart of the international system of trade and capitalism, and it forces less competitive and less quality manufacturers to respond with new innovations or it fails to exist as a going concern. Furthermore, the people selling the cars get to keep their jobs and potentially maintain the spread of wealth effects into their local economies.