Image: Cash for Clunkers
Paul J. Richards  /  AFP - Getty Images
A 4-wheel-drive vehicle sits in a dumpster outside Koons Ford in Baltimore, Maryland, advertising that they are participating in the Cash for Clunkers program.
updated 8/14/2009 5:48:56 PM ET 2009-08-14T21:48:56

Auto dealers say they still haven't been repaid for the majority of Cash for Clunkers deals they have made, creating cash crunches for many as they wait for the government to reimburse them under the popular $3 billion vehicle trade-in program.

Some dealers report they have hundreds of thousands of dollars worth of rebates they have submitted to the federal government for repayment that are still outstanding, including deals that were made in the first days of the program nearly three weeks ago.

Duane Paddock, who owns a Chevrolet dealership near Buffalo, N.Y., said dealers may stop selling clunkers under the program because of the funding lags.

"I've got dealers who are reporting to me that they've got over $3 million that they've fronted and they haven't been paid anything. It's just killing dealer cash flow right now," said Paddock, who serves as co-chair of GM's northeast region dealer council.

The National Highway Traffic Safety Administration, the federal agency overseeing the program also known as NHTSA, said Friday that dealers have submitted requests for rebates that total $1.5 billion — half of the money allocated to the program — through the online system set up to process and pay the claims. But NHTSA did not provide a dollar figure for the total amount that has actually been paid since the program began July 27.

There are indications that not much of that money has actually flowed to dealers. A survey of about one-fifth of Virginia's 519 dealerships done this week by the Virginia Automobile Dealers Association found that only 2.8 percent of the roughly 4,000 Cash for Clunkers deals submitted to the government have been paid.

The program has also been plagued by heavy demand that has overwhelmed the computer system and review process NHTSA set up. The agency has since hired more staff to process claims and has increased the capacity of the computer network. NHTSA has also held regular information sessions with dealers to help them file claims that will meet the legal requirements for reimbursement.

"The Department of Transportation is committing enormous resources and working overtime to process the overwhelming volume of applications both quickly and responsibly while getting rebates paid for complete and valid deals," said Sasha Johnson, a department spokeswoman.

Under Cash for Clunkers, car buyers are eligible for discounts of $3,500 or $4,500 depending on the fuel economy of the vehicles they trade in and buy. Dealers take the amount of the rebate off the sale price, then submit paperwork to the government proving the sale and that the trade-in will be scrapped.

Data released Friday shows the Toyota Corolla is the best-selling vehicle under the program, while the most popular trade-in is the Ford Explorer. The majority of consumers are purchasing passenger vehicles while trading in trucks and SUVs.

NHTSA has told dealers they can expect to wait 10 days to be repaid if their paperwork is in order and the deal is approved. But if there is a problem, dealers must resubmit their claim, leading to another potential wait period. That can create problems for dealers, who usually borrow money to put new cars on their lots and must repay lenders within a few days of a sale.

Government officials a big hitch has been that dealers are not following proper procedures by filing incomplete or inaccurate materials. For example, one of the main reasons Cash for Clunkers deals were rejected early on was because dealers failed to write "Junk Automobile, Cars.gov" in black magic marker on the title of the older cars that buyers were trading in.

A major reason for the close scrutiny of paperwork is fraud prevention. Citing the heavy volume of deals, Sen. Chuck Grassley, R-Iowa, asked the Transportation Department's inspector general Thursday to review the program for potential wrongdoing.

Many dealers still expect long waits. David McGreevy, sales manager for AutoServ, a New Hampshire dealer chain, said it may take up to a month to get repaid for $250,000 worth of rebates.

"That is quite some time," he said.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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