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

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.