‘Cash for clunkers’ squeezes dealers

/ Source: msnbc.com

The House vote to extend the wildly popular “cash for clunkers” car program left auto dealers in a kind of limbo Friday, not sure whether they should keep handing out deals to buyers who are flooding showrooms nationwide as they await Senate action next week on the program.

The $1 billion program, which promises owners of certain old cars and trucks as much as $4,500 to buy more fuel-efficient new vehicles, was suspended Thursday because it was already running out of money after less than a week. The House voted to triple the funding Friday, but the Senate won’t act one way or the other until next week at the earliest.

Meanwhile, dealers were gamely soldiering on, promising to honor the deals even though they’re having to dig into their own bank accounts to fund payments on deals they’ve already made. That’s because dealers front the cash and have to wait for a government rebate; it’s supposed to show up in 10 days, but now it could take longer — if it shows up at all.

“We just got word that the White House says it’s not suspended, so we’re still going forward,” Rory Griggs, president of Velde GM Supercenter in Pekin, Ill., said Friday “As of right now, we can’t really even get into the dealer portion of the [government] Web site to see whether the deals that we have in there are being processed or not.”

Anthony Davis, a salesman at the dealership, said cars were stacking up awaiting delivery to new owners, “but we don’t know if we’re going to be paid for them or not.”

In Rochester, N.Y., the showroom at  Bob Johnson Chevrolet was packed Friday as dozens of people looked to cash in on their old cars.

The dealership doubled its sales this week — but of its 140 clunker deals, it has been reimbursed by the government for only four of them. On an average of $4,000 per car, the dealership is on the hook for almost half a million dollars, General Manager Dave Foringer said.

With the added uncertainty about whether the program will continue, “dealers are now caught in a situation” in which they may have to tell buyers “they’re not going to be able to complete their deal,” said Brad McAreavy, president of the Rochester Automobile Dealers Association.

If that happens, “people are going to be upset,” he said.

Rush of buyers takes dealers by surprise
Dealers expressed some disgust with the government’s handling of the program, saying there wasn’t enough planning.

“It’s like we’re standing in front of this furnace stoking the fire and suddenly the government says, ‘OK, turn out the fire,’” said David Hoover, owner of Hoover Chrysler Dodge in Savannah, Ga.

“We promised people yesterday that we could do something and they could think about it overnight,” Hoover said. “The government saying we couldn’t do it was not going to be good for them or us.”

The basic problem is that the Car Allowance Rebate System turned out to be far more popular than anyone had anticipated. So many potential buyers flocked to showrooms that some dealers ran out of cars to sell, and the volume of business bogged down the Web site where they’re supposed to get codes authorizing the discounts.

The initial $1 billion was supposed to cover deals at more than 23,000 dealerships, which should have been the first clue that something was wrong, said Rusty Hill, owner of Panama City Toyota in Panama City, Fla.

“If you actually did the math ... it comes out to 10.8 deals per dealer. And I knew and a few other people that the program was going to run out of money three to four days into it,” Hill said.

“It was like a football play being drawn up on the playground,” he said. “There wasn’t a lot of thought behind it, which just boggles the mind.”

Adding to the difficulties, said Jason Cords, general manager of Shaheen Chevrolet in Lansing, Mich., is that “there’s a lot of paperwork” involved in the program, especially after the Environmental Protection Agency reviewed mileage ratings and changed the list of eligible cars.

That’s complicating sales and slowing the deals, frustrating some would-be buyers.

Pete Bracket of Prospect, Conn., traded in his gas-guzzling Oldsmobile, which got 16 miles per gallon, and thought he was getting $4,500 off a more fuel-efficient Nissan Altima this week. But the problems with the federal Web site left him without wheels.

“I can’t drive it,” Bracket said as he stood by the red coupe in the Barberino Nissan showroom in Wallingford, Conn. “This is actually mine right here, and as you can see, it’s still on the showroom floor.”

‘A stimulus that actually worked’
John Schicker, general manager of McMahon Ford’s in St. Louis, said the problems were turning out to be perhaps more trouble than the program was worth.

“It’s a little bit scary, because we’re taking a car in, we’re giving people an allowance for the car that the government’s going to refund us on, but we’re not 100 percent sure ... we’re going to get our money,” Schicker said.

Alan Helfman, general manager of River Oaks Chrysler Jeep in Houston, said he’d resigned himself to the probability that “I’m going to get hammered on a deal or two.”

McAreavy of the Rochester dealers group said lawmakers should pause for a moment, “figure out where we are, allow the deals that have been approved and completed to go through the system and just basically do an accounting and see where we are.”

But Foringer of the Pekin, Ill., GM dealership said he hoped it would be full speed ahead, even with the problems he’s putting up with right now.

“This is a testament of a stimulus that actually worked,” Foringer said. “This is one thing the government has done that’s proved to be good.”