Video: 'Clunkers' running out of gas?

updated 8/19/2009 7:54:29 PM ET 2009-08-19T23:54:29

Transportation Secretary Ray LaHood assured car dealers Wednesday that they will be reimbursed for the money they have fronted to customers buying vehicles under the Cash for Clunkers program.

LaHood was responding to complaints over a backlog of rebate payments. Dealers must cover customer rebates out of pocket and wait for reimbursement from the federal government. Some have said their reimbursement requests have not been approved, leading to a cash crunch. That’s key because dealers typically borrow money to put new cars on their lots and must repay lenders within a few days of a sale.

“I know dealers are frustrated. They’re going to get their money,” LaHood told reporters.

LaHood’s assurances came as a growing number of dealers ceased offering the program. A group representing New York metro dealerships said Wednesday that that hundreds of its members have withdrawn from Cash for Clunkers, citing delays in getting reimbursed.

Other dealership groups across the country say their members have stopped extending new clunkers deals out of fear they will be repaid late or not at all. The withdrawals are the latest snafu for a program that has managed to be both a huge hit, yet also a major administrative headache, for the struggling auto industry.

Through early Wednesday, auto dealers have made deals worth $1.81 billion and are on pace to exhaust the program’s $3 billion in funds in early September. The program offers car buyers rebates of $3,500 or $4,500 for trading in older vehicles for new, more fuel-efficient models and has generated more than 435,000 vehicle sales.

LaHood said the Obama administration would soon announce how much longer the car incentive program will last.

The Greater New York Automobile Dealers Association, which represents dealerships in the New York metro area, said about half its 425 members have left the program because they cannot afford to offer more rebates. They’re also worried about getting repaid, the group said.

“(The government) needs to move the system forward and they need to start paying these dealers,” said Mark Schienberg, the group’s president. “This is a cash-dependent business.”

Schienberg said the group’s dealers have been repaid for only about 2 percent of the clunkers deals they’ve made so far.

Melanie Bible, spokeswoman for the Pennsylvania Automotive Association, also said about half of the state’s 950 dealerships have stopped cutting new Cash for Clunkers deals. She said the figure is anecdotal, since no formal survey of dealers has been conducted. But many showroom owners remain worried about getting repaid.

“There’s still a lot of dealers that are participating,” she said. “The bigger problem is there are a lot of dealers that haven’t seen a dime yet.”

Ted Smith, president of the Florida Automobile Dealers Association said it’s unclear how many dealers are no longer participating in the program, but many continue to have problems getting reimbursed for their clunker deals.

The financial arms of several automakers have begun offering help to cash-strapped dealerships, in some cases by floating loans to help cover clunker-related shortfalls. Toyota Financial Services is offering loans to dealers for up to 60 days to cover the lag between a dealership’s payment and its reimbursement.

“That time lag is what it really boiled down to,” spokesman Justin Leach said. “We saw that as a potential issue.”

The financial-services arms of Honda Motor Co., Nissan Motor Co. Ford Motor Co. and other automakers are offering similar programs to help cover potential cash shortfalls at dealerships participating in the program.

The government’s online reimbursement system was flooded with reimbursement requests shortly after the program began in late July, overwhelming the computer system and staff set up to process the deals. That led to big delays for dealers trying to file the paperwork they needed to get paid back for the rebates.

LaHood said some of the submitted paperwork has been incomplete or inaccurate, leading to delays. He acknowledged the Transportation Department did not have enough people to process the paperwork but that DOT was ramping up staff.

DOT said earlier this week it was tripling its work force to handle the rebates and expected to have 1,100 workers dealing with the paperwork by the end of the week.

“This is a wildly popular program. It’s been a lifeline to the automobile industry in America — it’s helped put people back to work,” LaHood said.

But Schienberg said dealers have had their rebate applications rejected for often trivial reasons, like misspelled words in paperwork. Often, dealers aren’t even told what the mistake was when an application is rejected, he said.

“They’re spending hours and hours and days trying to get their transactions filed and approved by the federal government,” Schienberg said. “Administratively it’s become so burdensome.”

Michelle Primm, managing partner of a four-franchise dealership in Cuyahoga Falls, Ohio, said her store has stopped making deliveries on clunkers purchases until the sale is approved by the federal government.

Primm said her dealership has made 31 clunkers deals since the program was launched last month, but has only been paid for 3. She said she doesn’t want to extend any more rebates unless she knows she is getting paid.

“I’ve got payroll and I’ve got taxes to pay and all those things,” she said. “We’re small.”

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

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.94%
$30K home equity loan FICO 5.19%
$75K home equity loan FICO 4.58%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.40%
13.40%
Cash Back Cards 17.92%
17.91%
Rewards Cards 17.12%
17.11%
Source: Bankrate.com