Washington’s Gimmick For the Easily Sold- a Zero Hedge Glimpse at “Cash for Clunkers”

Travis's picture

For Those Who Don’t Remember- I Sold Cars

It seemed like every weekend, holiday, or season was a new thing, a gimmick, something to get someone down the road in a new car.  I remember a few weeks before Christmas we were giving out cruise vouchers.  Buy a new car- get a free cruise. 

It was one of those three-day, two-night deals to nowhere on a ship that looked like it had shared dry dock with the Andrea Doria at one time or another.  Yeah, sure, there was a buffet, a buffet of what I’m not sure.  But it was a cruise, and it was free.  

I sold a car, my sales manager who sat up in this raised platform, this tower, this Tower of Babel, promises the voucher to the client, singing Beyond the Sea as if he were Bobby Darrin.  Too bad he was more like Mack the Knife.  We misplaced the vouchers, gave them all away; who remembers, my client never got one.  “It’s in the mail…” I told him on more than one occasion.  Yeah, in the mail, along with that new-car satisfaction survey I needed a 100% on.

Three months later, cruise-less, this guy was hunting me down “I want my cruise voucher” like the paper-route kid on the bike in Better-Off Dead “I want my two dollars?”

And it worked.  That’s sales.  It’s a gimmick.  Now the government is getting into the promotions business. 

The Car Allowance Rebate System

The Car Allowance Rebate System (CARS) also better known as “Cash for Clunkers” is a $1 billion federal government program that helps consumers buy or lease a new, more environmentally-friendly vehicle from a participating dealer when they trade-in their older, less fuel-efficient car or truck. 

Signed by President Obama on June 24, 2009, it’s a stimulus program designed to energize the economy, boost sales and put “safer, cleaner, more fuel-efficient” vehicles on the road.  That’s what they’re pitching- the “green card.”  New car/truck buyers will be able to take advantage of this program and receive either $3,500 or $4,500 immediately off from the car deal when they trade in their old vehicle and purchase or lease a new fuel efficient one- it’s that simple.

Modeled after similar, successful programs offered in Europe, Cash for Clunkers began on July 1, 2009 and is slated to end on either November 1, 2009, or when the $1 billion in funding is exhausted.  The National Highway Traffic Safety Administration (NHTSA) was given the task of designing and implementing the program with select, participating new car dealers across the nation.  There is no pre-registration, no voucher, nothing has to mailed-in or out by the customer.  It’s fairly instant as far as rebates go, and everything is to be handled by the participating dealers and the NHTSA.

How it Works

The program divides old cars, trucks, SUVs and vans into different categories according to weight, class, size, etc, etc.  There’s a list of cars eligible for trade on the dedicated CARS website (www.cars.gov) or on sites like Edmunds.com (www.edmunds.com) as well as a full run-down of the program, rules, regulations and exclusions.

Ultimately, depending on the improvement in combined (city and highway) miles-per-gallon (mpg) efficiency your new vehicle of choice is rated in relation to your old car, will dictate the amount of rebate you will receive- either $3,500 or $4,500. 

For instance, if there’s a 2-9 combined EPA mpg improvement in the new passenger car, you get $3,500.  If there’s a 10 mpg or better improvement- you get $4,500.  But it all depends on the vehicle class you’re coming out of, and what kind of vehicle you’re going into.   There’s a published table and a corresponding scale out there if you’re interested to get into it.   

While there are scores of rules, regulations and fine print (where would anything associated with the government or car sales be without fine print?) some of the rules will surely take the fun out of the hidden car scammer in us all. 

The vehicle in trade must be less than 25 years old.  It must have been continuously registered and insured for at least a year prior to the date of program trade-in.  When new, it must have had an 18 miles-per-gallon or worse combined EPA rating.  How do you know the EPA rating?  Visit www.fueleconomy.gov/feg/sbs.htm.  And there’s more.  The new car in purchase cannot have a base price of more than $45,000.00.  

So, basically, there’s no trading-in Uncle Buck’s belching, rusting, back-firing classic Mercury coupe like the one he drove in the movie; nor can you wake-up and yank-out that hulking piece of shit doubling as a planter in your back yard you’ve been keeping off the road since Clinton was in the Oval Office- and hope to get the government’s money for it- towards your purchase of a new Ferrari.  That’s not happening. 

All cars traded-in under the program are to be disabled by the dealer and destroyed (either by crushing or shredding) and there’s even a scrap-value assigned to each vehicle traded-in.  So, expect to get some rubber floor mat money for that old hulk you just threw under the crusher and say good-bye to it.  

There Will Be Scams  
 
Now I’m not playing the “hater” or anything but I know the car business.  And I know what this ultimately is- it’s a gimmick, an incentive to get people in the door to look at new cars.  Just this time, it’s government sponsored.  But the best advice I can give to anyone interested in the program is to go online, look at the websites and get familiar with the program details and requirements before they walk on the dealer’s lot. 

Also, keep in mind that this rebate program has nothing to do with the individual manufacturers and/or dealer rebates offered by both domestic and foreign car makers; so, don’t be fooled into a bad deal thinking you did good getting $4,500 of Obama’s stimulus billion for being a savvy shopper.  One rebate has nothing to do with the other. 

I could just see people un-knowingly getting “banged-out” left and right with yet another variable such as this rebate getting thrown into the deal’s computations.  Buying a new car can be confusing enough. 

And I just know someone along the pipeline is going to figure out a way to beat the system.  You may even read about a company accused of selling hoards of used cars and parts on eBay, all while collecting the government’s money at the same time.  Something like that…  Someone, somewhere is trying to run with this gig- somehow.   

(Remember that sick bastard of a few years back who was running a crematorium, only for the Feds to find hundreds of dead bodies under his porch?  Remember him?  I’m sure there’s a car version of this story brewing as I write this somewhere…)

Critical Acclaim

Rumors and speculations aside, is the program working?  According to some dealers- it’s increasing showroom traffic, but that may also be in part due to the often extensive and competitive factory programs that abound for those end-of-model-year sales that pop-up around this time of year too?

Personally, I think it’s a unique opportunity for some people to get good money for a car that may not be worth even a fraction of the rebate.  To get a little ahead without the hassles of having to sell and or trade at a loss, a car no one really wants anyway.

Regardless, as of yesterday, the government reportedly dished-out some $17 million of the stimulus funding, or about 4,000 new car deals according to the NHTSA.  The program hopes to sell a total of 250,000 new cars through this deal. 

Car dealers are loving the publicity.   It’s a nationally publicized trade-in sales promotion paid-in-full by the federal government- what’s not to like?  These guys will do anything to get you in the door and maybe sell you something.  That’s their business.  And they need all the help they can get!

Some industry watchers are skeptical the program will do anything to boost sales at all. 

In an article published by the Associated Press on July 28, 2009, “Edmunds.com said that in any given three-month period, Americans trade in about 200,000 vehicles worth less than $4,500. That means, given the program's 250,000-vehicle cap, it will spur only 50,000 additional car sales.”

Edmunds CEO Jeremy Anwyl is further quoted "The incremental sales will be limited and at a considerable cost…  We are paying consumers to do something most would do anyway."

It Stinks of Green

In the end, you have to see this program for what it is.  It’s a promotion, albeit a federally sponsored one, to get people in the door at new car dealerships spending.  Sure, they’ll tell you it’s for the good of the environment.  You’re crushing bad cars for better ones, and why not?

What green are we really saving here?  We’re spending green under the veils of environmental stimulus.   

Sure, it’s for the “green” alright.  Yours. 

Reminds me back to that free cruise voucher, the one that never really came in the mail?  It looked great in pictures, but I never knew anyone who really got it, no less took the trip.  But they paid for it. 

Trust me, we always pay for it.  That’s sales.  

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Anonymous's picture

Screw them...Will NEVER in my lifetime buy an American car.

erich's picture

Screw who?  Why would you assume it requires the purchase of an American car?

Anonymous's picture

US lazy fucking autoworkers! JUNK pure and simple!!!

wheaties's picture

Never buy an American car?  Bought the only thing not made in America at this point are Kias, Volkswagens, or super luxury cars like Lamborgini.  Good luck with that.

Anonymous's picture

I hear that I would never buy American. I have purchased two car brands in my life time the first was a BMW and the second was a Jaguar. Just a side note Jaguar is much better than BMW.

troublesum's picture

Anyone notice how all of the goverment programs to entice people to buy homes and cars ends November 1st.... what happens after that... oh wait...BOOOOM!!!!!

 

Canned Food, Check

Bottled Water, Check

Seeds and Planters to grow food, Check

Guns, Check

Ammo, Check

Spent all my money before its becomes worthless, Check

Bring it!!!!

 

 

 

Anonymous's picture

Damn! I thought that at least one of our two cars would qualify for this handout, but I guess that's what we get for being responsible consumers for the last 15 years. Once again, the folks who have been doing it right for years get ever so violently screwed!

Anonymous's picture

Right... Too bad if you were smart enough to buy a fuel efficient car back in the day. You're shit out of luck for doing the right thing regardless of incentive.

What a bunch of BS. I wonder what the chances of me convincing the Government to provide people with a $4,500 incentive to buy my companies products are? Buckleys and none I'd say.

ghostfaceinvestah's picture

Welcome to America, home of the coddled.

Anonymous's picture

I tried to use my 9.5 y-o car in the program while getting a new ford fusion hybrid, but my old car was deemed "too fuel-efficient." The prgram sucks if was designed to help consumers. It DOES, however, get people into showrooms.

Anonymous's picture

If you want a qualifying car, that is easy... Go down to your local Pull-A-Part and buy one of theirs... Will cost you about $300, and will be more than enough for the $4500...

In short... Schemes like this are very easy to game. People like me, however, own 10+ year autos because of the obvious. I pay $21 ad valorem, and because I service it it runs almost for free..

Anonymous's picture

If you read the requirements it states that the 'clunker' must have been registered continuously and have been in your possession for at least one year.

With the program ending in November there isn't enough time to even let the clunker sit in your yard on blocks for while then pick up the 2011 model.

The only people getting scammed will be the ones who buy a POS on Craig's List then find out it didn't qualify.

I heard some drones a few cubicals down from me talking about how easy this 'scam' would be.

Is there a back log on approving ZH logins? I signed up a week ago am still waiting for approval. I so want to be legit.

-Bodhi

Chumly's picture

 

Good Morning Children...

At the rate the Gov't is destroying the lives of the citizens through the exponential creation of worthless debt, we will all be riding bikes to work, wearing tidy little gray uniforms and little gray caps.  Now that will be one helluva "green" economy when they are through with us.   It's a circus where the acts keep getting more feaky.  Hey Look!  Here comes the 350 lb woman in a thong bikini to sing the grand finale.

 

 

Anonymous's picture

Apocalypse Now- A better off dead reference, awesome first paragraph setup and thanks for making it a good morning in America.

Thought I would get a Glengarry Glen Ross reference with Rahm delivering the line, "You want to know what it takes to sell autos? It takes BRASS BALLS to sell autos in a depression" - but then again, perhaps better to save it for real estate.

But seriously, I would like programs that encourage higher mpg in general so we don't have to go to war with oil producing countries to protect "our way of life" due to peak oil. Just sorry to hear that this most likely won't stimulate much excess demand because of the cap. It's like that taxpayer home mortgage restructuring program that was publicized, and someone recently stated 1 person had actually restructured (PR gimmick).

Econofresh's picture

I'm from Europe, and here, the system is already SOOOOooo twisted :)

There are "car dealers" that only sell beaten up cars that meet the requirements and witch come from poland, russia... car that actually need to go to the scrapjard and car from Europe (I don't know the English word for it but we call them "Accidentées" = car that where in a accident but are structural to much damaged to drive anymore).

They clean them up, sell them for 300/400 euro (they get paid to destroy these cars from the previous owners to! :) )

And with that piece of crap, you go to the dealers. The dealers will even give you the adress where to go to!

 

And what is next?

Well:

In Germany, they pay less taxes on new cars. So car traders buy cluncker, buy a new car in Germany and export them to France, Belgium, the nethlands... exportfee : 1€ (for real!)

Now, in those other countries, a mercedes or bmw or Audi or VW costs about 25% more then in Germany.

The clue of the story: The now sell "less" new german cars in France, the nethlands and Belgium... and more in Germany.

And in those countries you can buy import cars at a 15% discount, and the car traders are cashing and bleeding the German taxpayer.

More sales? NOP. The bmw's and other cars you buy in France for example are always made in Germany.

So look to the exporters, look to Mexico for your scrap cars...

They will come back into the countrie by the thousands!

Bob's picture

"That's sales"? 

That would indeed seem to be the case.  The problem is that the entire American economy is filled with frauds and employees willing to run them with a shrug. 

Perhaps an article about that phenomenon of suspended conscience would be a good thing.  How can you criticize other people's honesty--even GS or CNBC--when you can so breezily confess and then dismiss your own complicity in such frauds as "that's sales"?

Anonymous's picture

Speaking of Goldman Sachs, did you see this?

http://www.nydailynews.com/news/ny_crime/2009/07/29/2009-07-29_da_goldma...

Goldman Sachs lawyer caught soliciting a 15 year old online!

Econofresh's picture

Here is another clucker scam:

http://www.volvocars-campagnes.nl/C30factorydelivery/

1. You go to sweden by plan (the trip is free!)

2. They pay your hotel for 1 week and restaurant (3 michelin star!)

3. You get to drive your new car home.

------------------------------------------------------------

The scam:

The exporters buy the cars at discount price, sells the cars at the same price as they buy it and sell it cheap!!

They don't get 1 penny! But why would they do that?....

They get all taxes back from the state: 24% = +-5000 euro

the trip is worth about a 1200 euro, so they make good money. 

aus_punter's picture

in Australia the federal government is giving a 50%  tax deduction in year 1 to businesses that buy a new car.... up to a prescribed value.  I know people who have shelf companies and small businesses who are buying the cars and backdooring them to friends and relatives below cost in order to pocket the deductions.

Then the market gets excited about a pick up in new car sales ! ha.

By the way, Glen Stevens is a fucking moron.....

Gilgamesh's picture

Damn I can't wait to read about our new Governmental Healthcare Program.  Me, and John Conyers.  "Botox for Bums"

Anonymous's picture

awesome article Travis

Anonymous's picture

I am disappointed in this article. Let me explain what this program is.

It is a bloodthirsty rip off of the American taxpayer so contracters can upgrade their trucks to 2 miles per gallon better.

This is an outrageous waste of my money and only because the UAW forked over 350 million to Obama.

Best bribe money the UAW ever spent was on their new flunkee.

As democrats rapidly loot our middle class to death, expect to see thousands of green scams at all levels of this unholy fascist liberal government.

In the end GREEN has become nothing more than a cute buzzword for WEALTH RE-DISTRIBUTION.

Anonymous's picture

You can trade in a Category 3 truck (a category 3 truck is a work truck and is rated between 8,500 and 10,000 pounds gross vehicle weight), which aren't rated for gas mileage, for another Category 3 truck. So if you have a 2001 Silverado L25, you can get $3500 to get a new Silverado L25. I'm not sure how much environment you are saving with that deal, but it's not much.

So you want to trade in your 150,000 1998 Saturn SL 5-speed? Too bad, you get zero and you'll like it. You want to trade in a big gas guzzler for a big gas guzzler? Have we got a deal for you. A ripoff by another other name........

http://www.fueleconomy.gov/feg/CarsResult2.jsp?id=1&column=2

Anonymous's picture

Ditto! Reward the irresponsible at the expense of the responsible. The Guv is making more friends every day.

ghostfaceinvestah's picture

Yeah, funny how the MSM then slams people for walking away from their mortgage.

If you want responsible behavior, reward responsible behavior.

If you want irresponsible behavior...

nedwardkelly's picture

But think of all the deserving car companies we're helping out!

Econofresh's picture

Yes indeed...

The Toyota and Honda people are already planning a big party! and if your yellow and are able to crap rice, YOU'RE INVITED!!

otherwise: you may apply to work in the kitchen

erich's picture

Stay out of my kitchen.  Stop fighting amongst your fellow schmucks and start blaming the political class who pass the laws.

Anonymous's picture

"Two-party system/paradigm/illusion." Ha!

Anonymous's picture

You have to drive a new car about 150,000 miles to justify the extra CO2 cost of producing the new car, so in effect it is more environmentally friendly to keep the old cars

glenlloyd's picture

it's absurd that we have government legislating this kind of crap. regardless as to whether it's purported to "work" it's only pulling demand forward, which is something you can only do once. The other horrible thing about it is that (in most cases) it probably involves someone getting credit, which is exactly what we don't need.

Why any sane person would want credit to buy a new car at this point in time is beyond me. we need to save money to buy the things we want...the borrowing spree is over.

Also, the comment about the cost in Co2 terms for producing a new car is well taken, there's nothing greener than what's already produced be that housing, cars whatever, so to claim that pulling these old vehicles off the road is greener is a fallacy.

And those who might actually benefit from this program won't bite because it still involves borrowing a bunch to get into the new vehicle, which they may not be able to access given credit scores...that is unless we're financing everyone ala housing bubble style.

To think we have representatives and an administration wasting time on this kind of crap!

Daedal's picture

2nd Hand Account: I know someone who traded in a 13 year old minivan for a new Honda CRV. 2 of the 3 dealerships had markups to the invoice of over $1,500, the third was 'only' $500 above invoice. You definatley need to shop around on various dealers. Nevertheless, these markups make perfect sense, free money will cause asset prices to rise (See: Housing) -- be prepared to share some of the $3,500-$4,500 with the dealers, but shop around, otherwise you'll get fleased! With that, if you have a clunker, and you were looking to buy a car anyways, now would definately be the time to get some of your paid taxes directly back into your pocket!

Anonymous's picture

That's probably why home prices went up a bit from May to June. When the govt is giving first-time buyers $8000 and CA is giving people $10,000 then that will encourage sellers to ask for more. So what seems like a deal becomes a burden.

Anonymous's picture

Directly on point glenlloyd.

"There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt." - John Adams

Bruce Krasting's picture

This past weekend I sold a 1987 subaru that my kids dumped in my driveway when it died. I got $500 for it. It is worth $3,500 to the new buyer.He went straight to a dealer with it.

So I am happy. My driveway looks better and I have $500 in my pocket. The new owner has $3,000 in his pocket.

My guy went to Subaru and got a new car. He got the Subaru and the Gvmt rebates. He also got Subaru financing. Net net he has a new car, a couple of grand in his pocket and a monthly bill.

But the taxpayers are stuck with the bill and I am not sure this stimulus has any lasting value.

 

 

nedwardkelly's picture

How is that possible?

"You should bring documentation establishing the identity of the person who currently owns the vehicle, preferably the title of the vehicle, and documentary proof that the vehicle “has been continuously insured consistent with the applicable State law and registered to the same owner for a period of not less than 1 year immediately prior to the trade-in.” "

ghostfaceinvestah's picture

And you think that is being checked?  Who is monitoring that?  The government?

Anonymous's picture

According to the above article that Subaru won't count since the new owner won't be in possession of the car for a year.

Anonymous's picture

Not just the article, but the fine print of the actual progam defines this...

Anonymous's picture

The only scam that I possibly thought of was buying clunkers that meet the guidelines for a few hundred dollars then reselling them for triple the price to someone who needed such a clunker. However, having to owned the car for a year killed that idea. Is there a way around that?

Econofresh's picture

Well: you don't buy the cars but play as a middle man. You advertise you you sell clunkers, and make sure you have a list of people who sell clunkers. The best way is to write them a little contract and give them already 100$ so making sure it's yours. When you sell the clunker, you go with your customer and the guy from who you buy the clunker to the cardealer. and you split it 20/80 with that guy. or 50/50 if your a Jehova witness :)

 

 

The only scam that I possibly thought of was buying clunkers that meet the guidelines for a few hundred dollars then reselling them for triple the price to someone who needed such a clunker. However, having to owned the car for a year killed that idea. Is there a way around that?

Anonymous's picture

California has a really good Vehicle Retirement program that many are unaware of that truly is a cash for clunkers program - it tops off at $1000. Basically, if your vehicle fails smog as a gross polluter, you can sell the vehicle to a certified dismantler (there's a list).

It requires an application, vehicle must be registered for at least two years in California for prior to retirement, etc. And the vehicle must arrive under its own power to the authorized dismantler. It really is meant to get older vehicles off the road.

http://www.bar.ca.gov/80_BARResources/ftp/pdfforms/CAP_App.pdf

I heard about the program from my mechanic.

wstrub's picture

This is a supply destruction plan.  The trade-ins go to the junk yard to be taken off the road and crushed.  If enough supply comes out of the system by this and production cuts, prices will eventually move higher.  This is what is needed to halt the current deflation cycle.

People will not be motivated to buy when prices are going lower..........they will get off the couch if prices start to escalate.

Anonymous's picture

I need a program to trade in my overweight wife.

Anonymous's picture

Get something with a smaller box, like a pick-up truck.

Stosh's picture

Consumers will move up their decision to buy a new car by a couple of years due to this program. So what happens to the automakers in 2010-12 when those projected buyers are not around?

This short sightedness by the automakers just adds another proverbial nail in their coffin...

OrganicGeorge's picture

Most clunkers are driven by the working poor.  They cannot afford to finance a new car.

If they were to trade the clunker for a newer car, say 5 to 7 years old in exchange for the clunker then we could get the old cars off the road and dramatically reduce emmissions.

Middle class car owners of the 5 to 7 year old cars should be given the incentive to trade up on any car or truck then we could incentivise new cars sales.

Largess for the poor and middle class, not the wealthly could work.

Lou629's picture

Never mind that the working poor cannot afford the payments on a new car, who is going to give them a loan in the first place, since credit is about as tight as it has ever been? 

I know that the bank can always have the car repo'd., but all that'll do is add to the balance of defaults they're already drowning in, no? 

Anonymous's picture

well, what we desperately need is to jump/re-start securitization (actually saw Steve Forbes arguing this point on tv within the past 2 weeks). that way, we can resume making poor lending/borrowing practices the entire country's problem.

dark pools of soros's picture

it is designed to make it easier for you to ditch Muffy's 16 year old bday pontiac for that new lexus for her grad party