New York auto dealers, miffed over government reimbursement delays, are threatening to pull out of the Cash for Clunkers car-buying incentive program.

Dealers are voicing concerns over what they describe as the federal government’s inability to administer the program effectively.

Many are in talks to stop offering the rebate program because the government is not approving transactions and reimbursing dealers in a timely manner, according to the Greater New York Automobile Dealers Assn., representing 450 franchised new-car dealerships in metro New York.

“In many cases, dealers have shelled out hundreds of thousands of dollars in rebates to consumers since the program began six weeks ago,” says association President Mark Schienberg.

Yet only a small percentage of that money, an estimated 2%, has been paid back to the dealers, leaving them potentially too cash-strapped to continue offering consumers the discounts.

“Even in the best of times, carrying this much debt would cause problems, but in today’s credit-strained economy, it’s simply too much for the dealers to handle,” Schienberg says.

The National Highway Traffic Safety Admin. has been overwhelmed by nearly 400,000 submissions from dealerships for the program that offers rebates of up to $4,500 in an effort to get older vehicles off the road and replace them with new cars that are safer, more fuel-efficient and pollute less.

NHTS says it is adding staffers to quicken the pace of processing submissions.

But the government’s foot-dragging on reimbursements isn’t the only issue vexing New York dealers.

Many of them complain the government is rejecting valid deals for minor mistakes and typos, but offering little or no guidance on how to correct paperwork problems.

Dealers say they can’t get timely yet simple answers about customer qualifications. Service phone lines often take hours to get through.

Dealers also complain the government’s system has rampant computer glitches that hinder rebate applications.

Another beef: dealers do not know when the $3 billion allocation will run out, yet are expected to pass on the rebates to consumers.

The New York dealer association is calling on the federal government to initiate a real-time notification system to alert dealers when the program is out of money.

Despite its problems, the clunkers program is a great incentive to get people to trade-in old vehicles for new ones, Schienberg says.

“We recognize that the program has been more successful than once anticipated, but if these issues are not straightened out quickly, the program is going to fail under its own weight,” he says.

Another compliment tempered by a complaint comes from Russ Darrow, a Wisconsin dealer who is chairman of the American International Automobile Dealers Assn.

He says the government must improve its lines of communication with dealers about when reimbursements are coming and when Clunkers is ending so they don’t unwittingly submit deals after funding has been depleted.

“NHTSA has done an incredible job getting this massive and complicated program off the ground in just one month,” he says. “But now they need to focus on communicating with us dealers.”

If the government can be transparent with dealers through the program’s end, “it will surely go down in history as one of this country’s most successful stimulus programs ever,” Darrow says.

There is evidence the program’s popularity is waning. An buying-behavior study indicates automotive purchase intent is down 31% from its peak in late July.

“Now that there is plenty of money in the program and the most eager shoppers have already participated, the sense of urgency is gone and the pace of intent decline is accelerating," says CEO Jeremy Anwyl. “Inventories are getting lean and prices are climbing, giving consumers reasons to sit back,” he says.

Auto analyst Jessica Caldwell says Cash for Clunkers buyers have come in three waves.

The first was informed buyers with pent-up automotive demands who anxiously awaited the program launch. Next was the mass market that responded to advertising and other promotions.

“Now the industry is largely servicing the third wave, which is generally made up of people who had to chase down copies of lost titles and other paperwork and are now able to finally participate,” Caldwell says.

After that, it is unclear where other customers will come from.