Industry Seeks to Maintain Cash for Clunkers Sales Momentum

Anxiety surrounds the pending conclusion of the federal government’s “Cash for Clunkers” scrappage program as industry observers ponder its impact on near-term consumer demand and dealers impatiently wait for reimbursement.

The program, which awarded car buyers up to $4,500 if they traded in an eligible used vehicle on a new-vehicle purchase, ends Aug. 24 at 8 p.m. after generating more than 457,000 sales. But payouts have been slow, forcing dealers to front the money to close transactions.

An estimated $1.1 billion of the $3 billion earmarked for payouts has yet to trickle down from Washington, but program sponsor – the Department of Transportation – insists the money will be paid if transactions are registered before the deadline and applications for reimbursement are properly completed.

Dealers will be able to resubmit rejected applications after the deadline. The DOT says it is adding staff to cope with backlog.

Bolstered by Cash for Clunkers, officially called the Car Allowance Rebate System (CARS), July’s seasonally adjusted annual rate of sales hit 11.2 million in the U.S., the highest peak since September.

August results are expected to mirror July’s, but fears of a rapid sales deflation have prompted dealers to extend the program through private financing.

“The government jump-started our industry, and now the industry has jump-started the economy,” says Brian Benstock, general manager and vice president of Paragon Automotive, a New York-based retailer group. “We need to do our job keeping it going.”

More than 90% of consumers who sought rebates under CARS were ineligible and this “left a lot of consumers unsatisfied,” Paragon says in a statement.

Dealers are concerned about fallout from the program’s slow reimbursement. Thousands say they have yet to see any money from the government. Several report being owed between $2 and $3 million.

Dealer consultant Carl Woodward surveyed 153 of his clients and found they had submitted 6,887 deals, of which only 838 – or 12% – have been approved. Only 330 of those deals have been reimbursed.

More than two-thirds of the dealers have not been paid for any deals.

To help their dealers, General Motors Co. and Chrysler Group LLC have begun providing cash advances to their dealers to cover the reimbursement delays.

Late last week, Honda Financial and Toyota Financial began allowing their dealers extra time to pay back floor-plan loans on vehicles sold under Cash for Clunkers.

The program’s impact on sales has been a welcome relief, a “lifeline to the automobile industry,” DOT Secretary Ray LaHood says in a statement. “At the same time, we’ve been able to take old, polluting cars off the road and help consumers purchase fuel efficient vehicles.”

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