‘Cash for Clunkers’ Office Still Active in Pursuing Fraud

WASHINGTON – Last year’s “Cash for Clunkers” government incentive initiative concluded about five months ago, but the program’s office still is in operation here, looking for fraudulent activity and making preparations should Congress authorize another round.

However, Frank S. Borris II, senior safety defects investigator-National Highway Traffic Safety Admin. and administrator of last year’s Clunkers’ effort, formally known as the Car Allowance Rebate System, tells Ward’s he’s heard no chatter of reviving the program.

“We’re ready,” he says after delivering a synopsis of the program’s successes and shortcomings to the Society of Automotive Engineers/Government meeting here. “But hopefully, we’ll get this economy moving and we won’t need it.”

The success of Cash for Clunkers, which provided consumers $3,500 or $4,500 towards the purchase of new vehicle depending on the fuel efficiency improvement over the trade-in, continues to be the subject of debate.

Some industry players say the resulting uptick in vehicle sales spurred recent production increases and provided a kick-start to the economy, but others claim it cost more to administer than it was worth and fuel-efficiency gains were nominal.

Count Ford Motor Co. CEO Alan Mulally among the former, but he stops short of asking for another round.

“Cash for Clunkers turned out to be a big success,” Mulally tells journalists during the Washington Auto Show, which is co-located with the SAE/Government meeting.

“We replaced a lot of older vehicles, moved fuel mileage way up for the whole fleet; people got cars they wanted and were holding back on,” he says. “But I think now the more important thing is getting the economy going.

“When we did (Cash for Clunkers), we did not know where the bottom was, so it achieved its objective of stabilizing the decline in the economy. Now we’re focused on what we can do to keep the recovery going.”

Congress authorized $3 billion for the program, as well as $50 million for administration.

Borris’ report to Congress shows 690,114 vouchers were issued and 677,842 were paid, while 12,272 transactions were cancelled by the dealer or NHTSA. About 3,000 transactions were processed each day. The average voucher issued was $4,209 and vouchers totaled $2.85 billion.

The total number of vehicles delivered under the incentive program included 401,274 new cars and 274,602 light trucks. The vehicles had a combined fuel economy, as estimated by the Environmental Protection Agency, of 24.9 mpg (9.5 L/100 km), compared with an average of 15.8 mpg (14.9 L/100 km) for the trade-ins.

The report also estimates a reduction in total fuel consumption over the next 25 years at 824 million gallons (3.1 billion L), with a savings of nearly 33 million gallons (125 million L) annually. The estimated reduction in carbon-dioxide emissions over the same period is about 9.9 million tons (9 million t), providing a social benefit of $278 million.

But as successful as NHTSA considers the program, administration presented a mountain of a challenge, Borris says. For starters, Congress gave NHTSA just 30 days to write the rules and launch the program.

Within that timeframe, NHTSA also had to develop a website; set up a hotline and consumer-education program; develop a secure invoice system to make payments to dealers; build a 7,000 employee-strong organization; and design a system to identify and deter fraud.

Early days of the program reflected NHTSA’s short deadline. Servers crashed, hotlines were always busy and dealers were pulling their hair out trying unsuccessfully to book deals.

“One lesson we learned – if we would have had more time, we would have done more research on how state Departments of Motor Vehicles document proof of insurance,” Borris says. “There are lots of different formats out there, and we had to teach 7,000 people.”

That slowed the processing of invoices, Borris says. The program started with one processing center but finished with 14 across the country.

As proof of how popular the program was, Borris says the CARS hotline received 50,000 daily calls over the program’s first several days. At its peak, 700,000 visitors were visiting the website each day.

Further reflecting the short development time, NHTSA updated the website’s frequently asked questions section at the end of each day. “We were changing tires on the car while it was going down the road,” he says.

It also was a learning process for dealers accustomed to working with paper, as the CARS’ process was completely electronic. “The rule was very cumbersome,” Borris admits. “It required dealers to get out of their comfort zone.”

Using weekly webinars and working closely with Washington-area dealers, NHTSA was able to identify common errors and produce a step-by-step checklist for dealers to follow. In the weeks during the program, CARS’ rejection rate was 90%. But in the final weeks, acceptances soared to 90%.

After opening for dealer registration on July 24, the system shut down on Aug. 24. Today, CARS looks for dealers and consumers who attempted to take advantage of the program, either by trying to resell clunkers or buy a second car under the program.

“Fraud (is) very sporadic,” Borris says. “We have not really found widespread fraud among either dealers or consumers.”

For example, tips from U.S. customs and border-control agents often prove inaccurate. Because CARS continues to update vehicles rejected by the program, vehicle-dentification numbers held by the agents are not current.

They might flag a vehicle, or a batch of them, entering or leaving the U.S. only to discover later they were unsuccessful CARS’ candidates.

A new anti-vehicle theft law also is helping CARS uncover potential fraud. Passed on Jan. 1, the law calls for state DMVs to check vehicle numbers against the Clunkers’ database before issuing titles.

CARS also deploys investigators throughout the country to visit scrap yards and make sure Clunker vehicles have been properly junked.

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