Although the government’s Car Allowance Rebate System (CARS) – also known as “cash-for-clunkers” – is generating a lot of interest among consumers, dealers have questions about how the incentive will help them sell more cars.
Some queries won’t be answered until the National Highway Traffic Safety Admin. publishes the final rules July 24, detailing how cash-for-clunkers is to be administered.
Congress has stipulated the program to begin July 1, but the National Automobile Dealers Assn. and NHTSA are advising dealers not to sell vehicles using cash-for-clunkers until the final rules are released on the program’s official website.
Dealers are waiting for letters from NHTSA informing them how to register to become an official cash-for-clunkers retailer. NHTSA will have to certify more than 19,000 dealerships for the program, leaving some experts wondering whether the July 24 date is feasible.
Auto makers have sent their dealer lists to NHTSA to help the agency better determine whether an applying store actually is a franchised new-car dealership ‒ the only dealerships eligible to participate in cash-for-clunkers.
Several dealers already are selling vehicles through the program. Others are implementing aggressive marketing plans while also making sure store processes are in place to manage potential cash-for-clunker customers.
Early evidence indicates consumers are interested in the government incentive. Auto maker websites report cash-for-clunkers is generating hundreds of thousands of hits and inquiries. Dealers that do nothing risk missing out on significant traffic, while annoying consumers who have questions about the program.
Congress allotted $1 billion for cash-for-clunkers. The incentive ends on Nov. 1 or whenever the money runs out. Some experts believe the federal funding will be depleted fairly quickly.
Paragonand Acura in Queens, NY, says it already has received more than a 1,000 leads because of the incentive.
The question for dealers is how to capitalize on cash-for-clunkers.
Ward’s has put together a guide based on numerous conversations with dealers, consultants and marketers who already are making the program work for them.
Prepare the store.
Make sure your entire staff, including receptionists, service advisors, technicians, new- and used-sales staff, understand the basic parameters of the program so they can answer questions.
Dealerships should develop a set process to move customers whose trad- ins are not eligible for cash-for-clunkers into other sales. The worst thing a dealer can do is say “no” and send a potential customer to another store.
Paragondivided its staff into two teams that competed for prizes in a mock game show which asked questions about the program.
The dealership also directed its advertising partner, Tier 10 Marketing, to create placemats with details of cash-for-clunkers for each sales person’s desk. “It’s an easy reference guide for our salespeople,” says Brian Benstock, co-owner of Paragon Honda.
The basic eligibility guidelines are as follows: The government incentive plan provides $3,500 for consumers scrapping used vehicles rated at 18 mpg (13 L/100 km) for new cars that achieve 4-9 mpg more (10.6-8.7 L/100 km), or $4,500 for new cars gaining at least 10 mpg (8.4 L/100 km).
Customers will receive $3,500 for scrapped light trucks rated at 18 mpg (13 L/100 km) or less when the new truck gains 2-4 mpg (11.7-10.6 L/100 km), and $4,500 for a 5 mpg (10.2 L/100 km) higher improvement.
Replacement vehicles must cost less than $45,000, while trade-ins must be 25 years old or less, registered under one owner and insured continuously for the full year preceding the trade-in.
Sean Wolfington, a partner in Tier 10 Marketing, suggests dealers develop an integrated advertising strategy, using online search, banner ads, email, direct mail, print, radio and TV. The ads should contain a consistent message and position the dealership as the place consumers go if they want the government incentive.
“Don’t forget to remind consumers that if they don’t qualify for the government’s program they might be able to qualify for the manufacturer and dealer incentives,” Wolfington says.
Ralph Ebersole, director-automotive consulting and dealership training for Cars.Com, advises dealers to train their service staff to identify potential cash-for-clunker vehicles that are in their store for service. “It could be an easy way to flip them into a sale,” he says.
Ebersole also suggests salespeople scout private-party listings on sites such as Cars.com, AutoTrader.com and eBay Autos for older vehicles offered at or below $4,500. “These owners may appreciate a quicker-than-expected sale and be in the market for a new car,” he says.
Dealers should consider buying lists from R. L. Polk and Co. or Experian Automotive of people who own potential cash-for-clunker vehicles, Ebersole and Wolfington both say.
Experian prescreens vehicle-owner lists for potential customers who are most likely to obtain new-vehicle financing.
Get the right inventory.
This is one area many dealers may overlook, but it could be critical to the store’s overall success with cash-for-clunkers. Ideal inventory includes smaller vehicles that have higher gas mileage, are less expensive and more likely to be financed for consumers classified as non-prime.
Several auto maker websites already include vehicle-reference guides pointing consumers to new vehicles that likely qualify.
Benstock says Paragon has placed orders for 120 Accord LXs and 240 Civic LXs to be delivered over the next 90 days to make sure he has the right inventory in stock.
Establish a process for the paperwork for scrapped vehicles.
“The key to this process will be managing the paperwork and following the required steps NHTSA releases on July 24,” Wolfington urges. “We know dealers will have to prove the vehicle was salvaged with some type of documentation before they can obtain the money from the government.”
People who have been on weekly conference calls with NHTSA officials to help develop the rules say the agency is focused on eliminating any potential loop holes dealers might exploit. So establishing a strict in-store process for keeping track of the paperwork is critical.
Develop a process to manage customer paperwork.
Wolfington suggests dealers establish a written process for managers and sales people to make sure they obtain the necessary documentation proving a customer’s eligibility.
“NHTSA is bound by to do its best to deliver electronic payments within 10 days of the documentation being submitted in full,” he says. “The key to managing the receivables will be in managing the documentation required to approve a consumer’s application for the rebate. Let customers know before they come to the dealership what paperwork they need to bring.”
Dealers should include this information in email correspondence with customers and on their websites in addition to informing customers on the phone when setting up an appointment.
Wolfington also suggests dealers have consumers sign a legal document acknowledging they received the credit towards the purchase and were educated about all manufacturer rebates and incentives. Dealers also should document when a customer opts out of the program and decides to take the trade allowance instead.
Work with your finance companies.
Several captive finance firms and banks tell Ward’s they will not adjust their lending guidelines for cash-for-clunkers.
Lending institutions ultimately may determine the success of the program. It’s probable most potential customers driving clunkers are doing so because they can’t qualify for new-vehicle loans.
Larry Bruce, vice president of Reynolds and Reynolds, a dealership-services vendor, advises dealers to be proactive and not wait for lenders to reject loan applications.
“Get with your captive lender – and establish two back-up lenders – to develop ground rules you agree to follow that might make the firms feel more comfortable working with you to extend their financing a little deeper,” he says.
It is true there are legitimate questions about whether cash-for-clunkers ultimately will generate the number of sales the government and industry are hoping for. But dealers can’t afford to sit on the sidelines on this one.
Dealers that are aggressive, careful and smart stand to steal significant market share and also enhance their brand while selling more cars and increasing their service business.