‘Clunkers’ increases sales, risks for dealers

Personally, I do not like the “Cash for Clunkers” program.  Yes, it is giving dealers quite a bit of business, but my worry is whether all of these dealers are actually going to be getting the money back.  If an allotment of money that was supposed to last 3 months only lasts 4 days, then how fast is this new allotment of money going to last?  They really have no idea, they are just pulling at strings.

The other think that I don’t like about this program is how they are destroying the “clunkers.”  They pour a liquid glass into the gas tank and run the vehicle til the substance hardens and the vehicle dies.  The motor is ruined.  They are trying to create a shortage of parts for used cars so then people will have to go out and buy the new ones.

But, the main concern right now, in my opinion, is making sure the dealers get their money back, or there are going to be lots of businesses suffering!

(ARTICLE BELOW)

The wildly successful “Cash for Clunkers” program is boosting business at regional car lots, but it’s also creating worry for dealers who have large amounts of money tied up in the government-backed transactions.

Some dealerships have hundreds of thousands of dollars at risk because they have qualified cars as clunkers that the government has yet to approve, they said.
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The federal program is designed to stimulate the car-buying market. The government initially infused $1 billion into “Cash for Clunkers,” which allows dealers to knock off $3,500 from the price of a new car if it gets 4 mpg more than the clunker a customer trades. If the new car gets 10 mpg more, the customer gets $4,500 off the price. The government then reimburses the dealership.

“Cash for Clunkers” ran out of the first $1 billion appropriated for it in less than a week. It was supposed to last until November. The government issued another $2 billion to keep stimulating the market. The program began July 24.

“(Cash for Clunkers is) a good thing,” said Ray Bromley, vice president of the Harrisburg Automotive Trade Association.  “(But) it’s risky. I haven’t met anyone who has gotten money back from the process.”

Dealers are nervous because they are paying the difference until the government reimburses them. And one dealer said businesses such as his are qualifying cars for the program before they get approvals back because customers will go elsewhere if they don’t.

Lancaster Toyota Inc. sold 100 cars through “Cash for Clunkers” and its sister dealershipLancaster Nissan Inc. sold 45, said Rob Allen, partner at Lancaster Toyota. Generally, the Toyota dealership sells about 30 cars a week, and the Nissan dealership sells 15 to 20 cars, Allen said of recent sales.

“I wish the paperwork wasn’t such an absolute nightmare. I have had nightmares,” Allen said. “I think clunkers are definitely helping business. The first seven days of August have been the best first seven days of the month we ever had.”

Sutliff Cheverolet sold 140 cars in the past few weeks, and 100 of them were clunker deals, said John Hickey, company president. That’s $2.5 million to $3 million in sales the company would have gone without had it not been for the program, he said. Several years ago, Sutliff Chevrolet sold 150 cars per month; these days, it’s usually about 85, Hickey said.

Sutliff, which has $400,000 in approvals pending, had yet to get one back as of Monday, Hickey said.

Dealers are still doing the same credit checks, and banks are not giving loans to everyone who wants to buy a car, dealers said. Credit is about where it should be, Allen said.

Dealerships are relying on their know-how to make sure the cars they qualify match program requirements, they said. And there is a litany of requirements that have to be met before the government will accept a deal into the program, they said.

The government has adjusted some of its rules since “Cash for Clunkers” began to make the process easier. For instance, dealers can wait longer to kill the engines of clunkers by making them permanently seize up with a silicate solution before sending them to a scrap yard. Initially, they had to disable the engines as soon as a transaction was completed.

If it hadn’t changed, it would have created even more risk because dealers could have sold a new car, killed the trade-in and been left with nothing if the dead clunker was not accepted into the program, Bromley said. This way, dealers at least can keep the car they took in a trade should it not be approved, he said. Bromley also owns Lehman Motors Volvo in Hampden Township and Jaguar Harrisburg Motors in Swatara Township. Lehman Motors Volvo was approving deals before it got government approvals back, but the risk was too high, Bromley said, and it no longer is delivering vehicles to customers until the government gives each transaction a thumbs-up.

Another worry for dealers is how long the money will last, making them wonder when they should put the brakes on deals. Then there is the mountain of paperwork Allen, and other dealers complained about and have to process after they cut a deal. Allen has employees working through the night to get all the documents filled out. Sutliff has about six staffers dedicated to paperwork, Hickey said.

Dealership efforts are not speeding anything on the government’s end, dealers said. And long delays could hurt small- to mid-sized car lots that have several hundred thousand dollars tied up in pending approvals and are not well capitalized, Bromley said.

Some dealers, such as York County’s Carl Beasley Ford Lincoln Mercury, are taking deposits from customers to protect themselves should a vehicle it accepts not get accepted into the program, said Ed Baker, Beasley General Manager.

Baker, like other dealers, complained about the paperwork. But there is no denying that the “Cash for Clunkers” program is helping business, he said. The dealership sold 84 new cars in July, compared with 64 during the same month last year.

Some of the larger dealers said the program isn’t helping all car businesses,  especially smaller ones that depend most on lower-priced used vehicles. There are fewer vehicles available for small to mid-size used-car dealers because the clunkers go to the scrap yard instead of auctions where many small dealers buy their inventories.

Dealers generally make a larger profit on used cars, they said. But bigger dealerships such as Sutliff are not affected much by the lack of used inventory because the cars they sell on their used lots are normally valued more than what the program pays, Hickey said. If someone were to bring in a car that is worth more than what the clunker program pays, dealers said they will buy it themselves and put it out on the lot. Smaller corner lot dealers are the ones who will be affected the most by the lack of used vehicles, he said. Many dealers make a larger profit on used car sales than they do on new vehicle sales, dealers said.

In some instances, dealers said they are finding it hard to kill engines in vehicles that are still viable but are not worth more than what the program pays. For instance, Baker said Beasley had to seize the engine on a 1994 Ford Ranger truck in great condition. The vehicle’s value did not make it worth keeping, so it is a clunker and will be killed, he said. It’s troubling in his line of work, Baker said, because he was trained to keep cars running.

As heart-wrenching as it might be to toss certain cars and the nightmarish mountains of paperwork that comes with “Cash for Clunkers,” dealers said they know the program is a good thing.

And the program couldn’t have come at a better time as the economy looks poised to turn around, Bromley said. His Volvo dealership has sold a few more cars from the program and business has been up since May. The momentum should continue into the fall, even after the money runs out, he said.

“In hindsight probably the best thing would have been to have people claim it on their taxes,” Bromley said. “(But this is what) the stimulus money was spent on to achieve.”

CLUNKER 101

  • Under the federal “Cash for Clunkers” program, a customer who buys a vehicle that gets 4 miles-per-gallon (mpg) more than their trade-in vehicle gets $3,500 off the price of the new vehicle; one who buys a vehicle that gets 10 mpg more than the old one gets $4,500
  • A vehicle must be less than 25 years old on the trade-in date
  • Only the purchase or lease of a new vehicle will qualify
  • Trade-ins must get 18 mpg or less; certain large pickups and vans have other requirements
  • Trade-ins must be registered and insured continuously for a year before the trade
  • The program runs through Nov. 1 or until federal funds run out
  • Trade-in vehicles are scrapped, and dealers have to permanently disable the clunker. The scrap value of the car is added to the rebate

Source: www.cars.gov

http://www.centralpennbusiness.com/weekly_article.asp?aID=04632881.1523532.941590.6087784.8561411.701&aID2=72421

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