Aug 16, 2009


I'm stuck at work this morning, working an overtime shift - this is actually an OK thing, since it will mean a bump to my Toy Acquisition Fund. Sunday mornings are often slow, and the calls for service tend to be legitimate, as nearly anyone involved in emergency services can verify. Sunday afternoons are anyone's guess, but can be calm depending on who's playing football and whether or not there's a race on. After the games and the race, the phones start ringing again. (Standard quiet times: Sunday mornings, Christmas morning, New Year's Day morning, Super Bowl game time, NASCAR races. Afternoons and other sporting events have no standards.)

In any case, I swung through Dunkin' on my way in for a bite (their bagel sandwiches are really quite good) and grabbed our local rag on the way out the door. Buried on page 11A (Business) was this AP slug: "Dealers yet to see cash for clunkers". It's over about eight column inches of text, which I skimmed.

Short form: dealers have taken in trades under the "cash for clunkers" program, officially known as the "Car Allowance Rebate System". Dealers then fill out paperwork and submit it to the government for the rebate - this is a standard process in the car business, which I was involved with a lifetime ago. A car is sold for X but has a rebate of Y on it; the rebate is applied to the bottom-line price and the difference (X-Y) is the price paid by the customer. At delivery/closing, the customer signs a rebate form assigning the rebate to the dealer. The rebate amount is fronted by the dealer until the manufacturer cuts a check back to the dealer...

Problem: dealers are expecting the US Government to write checks back to them in a timely manner. As anyone who has filed their income taxes knows, this is about as likely as birthers and truthers sitting down and having a friendly discussion about the next candidate for the US Presidency.

When you have excess taxes withheld from your paycheck, you are providing an interest-free loan to the US Government. Some of us choose to do that for various reasons, others do not - matter of personal preference. Either way, you still receive the majority of your paycheck.

Dealers, however, are running a business. They pay for their inventory up front. When a customer buys a car, they are not buying it from Ford - they are buying it from the Ford dealer franchisee. The profit margin on the car is what pays to keep the lights on, the A/C running, salaries for employees, etc. The manufacturers know this and cut rebate checks back to dealers quickly - usually on a weekly basis, if I recall correctly. Keeping the doors open is what sells cars, and stiffing the dealers for their money will not make for open doors.

With that out of the way, the article notes that the NHTSA - the agency overseeing the rebate program - has received approximately $1.5 billion (with a B) in rebate requests. They have not disclosed how much has been disbursed. There are, however, dealers who are claiming unpaid rebates in excess of $3 million (with an M). I realize, of course, that this amount is likely the exception rather than the rule, but large numbers aren't going to be unusual.

A bit of fast math: if every purchaser received the maximum $4500 rebate, that dealer has sold in excess of 650 cars since the program inception. Clearly, this is a large, multi-franchise dealership, and probably does a high volume to begin with... but $3 million is a hit that very few businesses can afford.

End result: dealers are starting to announce that they will not offer the "CARS" program. No doubt there will continue to be some who will, but if this becomes widespread, the government's plan to invigorate the auto market will have effectively failed.

Aside: We've all seen the YouTube video of mechanics pouring silica suspensions (read: sandy water) into the oil fill and running them at ridiculous speeds until the engine overheats and seizes. Doesn't this strike anyone as near-criminal? The video I saw looked like a fairly late-model Volvo sedan being run to failure. I'm a bit of a car geek, and while I don't like Volvos (personal preference), they are well-built and extremely safe cars. Now, this car which had been a perfectly acceptable family sedan is so much scrap metal - destined for the pick'n'pull and the engine block going to the junkyard.

Where do we strike the balance between supporting labor and the economy, and continuing use of the functional resources we have available?

Panem et circenses, indeed...

1 comment:

doubletrouble said...


Private enterprise through dealers &
car companies works ok- check.

Gummint gets involved in the program & the whole thing is SNAFU- check.

And anyone is surprised?

Good post...