Cash for Clunkers Is Left Cashless

Auto Dealers Fear US Government Running Out of Rebate Money

Aug 1, 2009 Frank W. Hardy

In a scramble to help the ailing auto industry, US legislators instituted the Cash for Clunkers program in late July with an initial $1 billion. Sales were so robust that government officials cancelled it on Thursday because of fears the program had run out of money. Bewildered consumers are told “many auto dealers are continuing to sell under the program, but you may want to call before you visit,” Patrick Danner reported in Friday’s Miami Herald.

Worried Auto Dealers

And thus the dilemma - consumers expect the program when entering showrooms. In a time when auto dealers are scrapping for customers, the program pits consumer expectations against dealers’ realities. Possibly haunted with thousands of unpaid deals they must continue to service new clients wishes.

Columnist Joe Taschler of the Milwaukee Journal Sentinel reported Thursday, “With thousands of cash for clunker deals pending, auto dealers…across the nation were working through a worry-filled night…that the program is being suspended because it has likely run out of money.” John McEleney, chairman of the National Automobile Dealers Association told the Wall Street Journal also on Thursday, "… we don't know when the curtain is going to fall on this thing.”

North Palm Beach, Fla., dealer Earl Stewart claimed “he planned to continue to sell cars under the program but would delay delivering the new vehicles and scrapping the trade-ins,” according to a Friday AP report. "It's been a total panic with my customers and my sales staff…,” Stewart argued.

ABC consumer correspondent Elizabeth Leamy reported Friday, “Some dealers are actually now making people sign something, saying they will return their…car, if the government reneges on the deal.”

The Program

Officially called the Car Allowance Rebate System (CARS) was never actually stopped but information about its possible demise has sent shockwaves throughout the auto industry. Angela Keane of Bloomberg News reported yesterday, “Lawmakers had expected the program to generate about 250,000 vehicle sales and to have enough money to last until about Nov. 1.” But Jorge Rodriguez, manager of Gus Machado Ford in Kendall, Florida told the Herald, “I didn't expect [the money] to run out in a week."

Another Bailout

The U.S. House of Representatives approved an additional $2 billion for the program; however, the Senate has yet to vote. The bailout money will come from the economic stimulus package for energy loan guarantees that has already passed congress. Keane reported Senator Carl Levin of Michigan claimed, “The [Obama] administration worked overnight literally to identify a source for these funds….They are not only on board, they are enthusiastically leading this effort.”

Bi-partisan Opposition

• Republicans – Bloomberg reported, “The effort to revive the program may face opposition from lawmakers…opposed to using taxpayer money to support the auto industry.” Jeb Hensarling, a Texas Republican, said in a statement. “Other industries are hurting in the U.S. recession, and the auto industry shouldn’t get more aid.” Sen. John McCain alleged, "…cash for clunkers - another outrageous act of generational theft!"

• Democrats – California Senator Dianne Feinstein said in a joint press conference Friday, that “any extension…must go further in advancing the goals of better fuel efficiency and greater emissions reductions…[and she could]…not support any bill that does not meet these goals.” Sen. Claire McCaskill said via Twitter, "I will vote no on any extension of Cash for Clunkers program."

Whether the Senate passes the extension or not, while important, it does not eliminate the immediate threat to dealers (and potentially customers.) The stalling US economy and hard hit American consumer require the weakened auto dealers to take the greatest risk after the introduction of a successful program. The success of the program stresses the American consumer will spend, but only if properly enticed.