Here Come the Clunkers! (Hopefully)

Despite questions surrounding the federal “cash-for-clunkers” incentives scheme and doubts by industry experts that the initiative will make a dent in declining car sales, Brian Benstock, a Honda dealer in Queens, NY, says the program already is working.

Paragon Honda and Acura is one of several dealerships that have sold vehicles using the incentive. “I'll take credit for selling the first cash-for-clunkers vehicle,” Benstock says, referring to a vehicle the dealership sold July 1, the program's official start date.

The customer traded in a '99 Dodge Caravan for a '09 Honda Fit.

According to the Car Allowance Rebate System (CARS) — the initiative's official name — which stipulates the program to begin July 1, most dealers waited for the National Highway Traffic Safety Admin. to provide the final rules governing the legislation on July 24 (which, as of press time still were unavailable).

NHTSA and the National Automobile Dealers Assn. cautioned dealers against selling vehicles under the program until the rules are published. “If they do, they are doing so at their own peril,” NHTSA spokesman Rae Tyson says.

Individuals attempting to defraud the government using the program will pay fines up to $15,000.

As of press time, dealers had yet to receive 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 in a very short amount of time, leaving some experts wondering whether the July 24 date was feasible.

Auto makers sent their dealer lists to NHTSA in early July 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.

Sean Wolfington, a partner in Tier 10 Marketing, a firm helping dealers design advertising programs promoting cash-for-clunkers, says clients are taking different approaches.

“Many are waiting to see what the government comes out with, because they don't want to take the risk of delivering vehicles that may not qualify for the rebate,” he says.

“Others are implementing the parts of the process that prepare their customers to take delivery on the date the program becomes available, such as completing credit applications, gathering paperwork that proves ownership, registration and insurance.”

Hyundai Motor America is providing payments to its U.S. dealers to enable them to get a jump on competitors waiting for the published rules. Alexandria Hyundai in Alexandria, VA, recently sold an Elantra Touring vehicle under the program. replacing a '95 Ford Explorer.

The payments cover the new-vehicle credits Hyundai dealers are giving customers until NHTSA releases the rules and the government begins reimbursing dealers.

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.

Benstock admits he is rolling the dice selling vehicles before knowing the official rules are released, but says if the sales don't qualify, “at the most, I've overpaid for a few trades.

“That wouldn't be the first time I've done that. But everyone is sitting around waiting for something to happen. We want to get moving and create some momentum.”

Benstock has instructed a salvage company not to scrap the vehicles until he knows for sure whether they qualify as clunkers under the law.

However, he is confident the sales will be ok. “You have to trust the federal government that it will help the consumer,” he says. “It didn't do much to help the manufacturer or dealers this year, but I think it will when it comes to the consumer. Really, are we going to find ways to keep people out of cars?”

As further proof cash-for-clunkers already is working, Benstock says he has placed orders for 120 Accord LXs and 240 Civic LXs over the next 90 days to make sure he has the right inventory in stock.

“In a sense, those are cars that have already been sold because of the program,” he says.

Experts believe dealers will have better success with the program if they have an adequate stock of lower-priced vehicles with higher fuel-economy ratings in their inventory.

Putting customers into Accords and Civics should make financing easier, along with providing fuel-efficiency benefits for potential customers, Benstock says.

The government incentive plan provides $3,500 for consumers scrapping used vehicles rated at 18 mpg for new cars that achieve 4-9 mpg more, or $4,500 for new cars gaining at least 10 mpg.

Customers will receive $3,500 for scrapped light trucks rated at 18 mpg or less when the new truck gains 2-4 mpg, and $4,500 for a 5 mpg higher improvement.

Replacement vehicles must cost less than $45,000, while trade-ins must be registered under one owner and insured continuously for the full year preceding the trade-in.

Benstock also believes marketing campaigns currently being created by auto makers and dealers to promote cash-for-clunkers is another sign the initiative is working, because it is generating incremental revenue for advertising firms.

Using an integrated-marketing program designed by Tier 10 Marketing, Benstock says Paragon had garnered more than 1,000 leads asking about cash-for-clunkers, even before President Obama signed the bill into law.

Cash For Clunkers Incentive Amounts

*MPG requirements are based on EPA's combined city/highway rating ^†GVWR = Gross Vehicle Weight Rating ^‡Not applicable; Category 3 trucks do not have EPA MPG ratings Source: www.cars.gov