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Cash For Clunkers Running Out of Gas

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What a shame.

What may well be the best idea yet from the Obama administration is so seriously flawed that, after only a week of overwhelmingly enthusiastic response from the public, it is not only running out of funds, but is also being badly mishandled by the government, according to auto dealers across the nation.

Formally known as the Car Allowance Rebate System (CARS), Cash for Clunkers offers up to $4,500 to consumers who trade in their old car, SUV or light truck for a new vehicle which gets at least 2 mpg EPA rated combined city and highway (the sticker mileage rating) more than their “clunker.” The higher the mileage increase, the more the consumer receives, to the maximum of $4,500. The public knows a good deal when it sees one, and has literally flooded showrooms all across the nation.

The idea, simple and elegant, literally has something for everyone: it offers a stimulus that actually does stimulate and is truly attractive to the public, benefiting them and the economy at once. Thanks to their unqualified embracing of Cash for Clunkers, car sales are skyrocketing, as customers return to auto showrooms in droves, stimulating both manufacturers and their hard-hit dealer networks. Further, by encouraging Americans to trade in their old, gas hog cars in a way that is both attractive to, and beneficial for consumers, Cash for Clunkers is thus far the best attempt yet by the Obama administration to offer a viable means of cleaning up the environment.

Unfortunately, the program is seriously flawed and poorly executed. Funded at just under a billion dollars, it is already running out of money, less than a week into the offer. Unlike the financial bailouts, this program actually helps not only the economy, but more importantly, the American consumer, yet no one in the administration had the foresight to see how popular it would become. Administration officials are scrambling, belatedly, to find more funds before the disappointed public, already being turned away from dealerships afraid of being stuck with the up to $4,500 per vehicle tab, loses interest.

For their part, dealers are complaining that, besides being underfunded, the execution of Cash for Clunkers leaves a lot to be desired:

A survey of 2,000 dealers by the National Automobile Dealers Association found about 25,000 deals had not yet been approved by NHTSA, or nearly 13 trades per store. It raised concerns that with about 23,000 dealers taking part in the program, auto dealers may already have surpassed the 250,000 vehicle sales funded by the $1 billion program.

Dealer complaints range from the excessive paperwork involved to close a deal, to the agonizingly slow response times they are experiencing from the Transportation Department's National Highway Traffic Safety Administration (NHTSA), the bureaucracy charged with administering the program. In Minnesota, not a single dealer has received payment from the government for cars sold under the program.

According to the Minneapolis Star Tribune,

Scott Lambert, executive vice president of the Minnesota Auto Dealers Association, said Minnesota dealers have $10 million at risk. He said that a survey he completed at 1 p.m. Thursday found that no Minnesota dealers' submissions had been approved.
"This whole thing is a pile of junk," he said. "The program is a clunker."

Lambert said the program's 138 pages of rules, combined with a federal online system that continuously freezes up when dealers try to enter their submissions, leave him baffled as to how the money allocated for the program could already be drained. As of Thursday morning, the cash for clunkers website listed $858 million left for redemption, he said.

"Where did the money go?" he said. "This is outrageous. This is as big a mess as I can imagine."

Auto manufacturers advertised the program heavily during the weeks before it became effective a week ago today, on July 24. Many dealers are beginning to regret their participation in the program, as they see the government's indebtedness to them pile up, with no payments forthcoming, even as the media trumpets the fact that Cash for Clunkers is already out of cash.

What a shame.

One can only wonder if, when universal health care is finally adopted, that legislation will be better planned, adequately funded, and efficiently administered, or will it be another CARS debacle?

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About Clavos

Raised in Mexico by American parents, Clavos is proudly bi-cultural, and considers both Spanish and English as his native languages. A lifelong boating enthusiast, Clavos lives aboard his ancient trawler, Second Act, in Coconut Grove, Florida and enjoys cruising the Bahamas and Florida Keys from that base. When not dealing with the never-ending maintenance issues inherent in ancient trawlers, Clavos sells yachts to finance his boat habit, but his real love (after boating, of course) is writing and editing; a craft he has practiced at Blogcritics since 2006.
  • http://www.joannehuspek.wordpress.com Joanne Huspek

    What can I add? You said it all. Bureaucracy trumps common sense.

  • http://handyfilm.blogspot.com handyguy

    There are plans afoot to add more funding — to $3 billion or more.

    A few weeks ago, there were plenty of skeptics who said the program was too complicated and wouldn’t get enough takers. Now it’s a success, so some people need to turn that into a complaint too.

  • Clavos

    Yeah right, handy…

  • http://www.republicofdave.com Dave Nalle

    Small correction. It shut down on Thursday, so it was only actually operational for 3 days.

    But from what I hear the paperwork to get the money was so complex that it may not even have all been given out.

    Dave

  • http://joannehuspek.wordpress.com Joanne Huspek

    Is what I hear true? That they are CRUSHING all the clunkers? They can’t be stripped of good parts and they can’t be resold? (My dad was in junk… I mean “salvage” and I can’t believe this! What kind of recycling is that?)

    Also, I hear if you go on the cars.gov web site you’re asked to sign off on a TOS where the government co-ops your computer as part of the process. I would look, but I’m not giving Big Brother my computer, nosiree Bob.

    Scary times.

  • Clavos

    Joanne,

    I just went back on the cars.gov website, but didn’t find the co-op requirement you mention. I did find this in regard to your point about scrapping the trade-ins:

    The CARS Act requires that the trade-in vehicle be crushed or shredded so that it will not be resold for use in the United States or elsewhere as an automobile. The entity crushing or shredding the vehicles in this manner will be allowed to sell some parts of the vehicle prior to crushing or shredding it, but these parts cannot include the engine or the drive train.

    I also found this laugher:

    Rebates are limited to transactions between July 1, 2009, and November 1, 2009, OR when the funds are exhausted — even if that occurs before November 1.

  • Mark

    Here’s a slightly less alarmist report from the WSJ.

  • Mark

    …just another subsidy for the owners imo — public money transferred into private coffers ensuring their profits.

  • Clavos

    ..just another subsidy for the owners imo…

    So the tens of thousands of citizens trading their cars don’t count? The stimulus to car manufacturers and dealers and the people who work in those businesses doesn’t matter? The reduction in emissions achieved by retiring tens of thousands of polluting vehicles is insignificant?

    You’re right; all the program does is enrich millionaire auto company stockholders and millionaire car dealers.

    You’re even more cynical than I, Mark, and that’s not easy.

  • Bliffle

    I’m not tempted, even tho I own several ‘clunkers’ because I would have to buy a new car and I prefer old cars. I can’t even trade up to a better mileage car. And I have one old ‘clunker’ which is imminently ready for the junk heap.

    I heard that the trade-in dealer has to poor a chemical into the engine that disables it.

  • http://www.republicofdave.com Dave Nalle

    Mark, there’s no such thing as “public money.” It’s all the citizens money taken by force by a rapacious government.

    And the article got out of date really fast, since they passed $2 billion more for the program in the House earlier today and I imagine it wil pass the Senate too by the time I’ve posted this.

    Dave

  • Clavos

    And the article got out of date really fast, since they passed $2 billion more for the program in the House earlier today and I imagine it wil pass the Senate too by the time I’ve posted this.

    Not exactly. The article’s second point, that the bureaucracy has, as the bureaucracy always does, royally screwed up the administration of the program and the distribution of the funds is still a major problem, and likely will be for the duration of the program.

    As I noted in the article, not one single dealer in Michigan (of all places!) has been paid yet.

    So Congress can add more funds, but if the dealers don’t have any confidence they will be paid, they won’t do the trades.

    And coming down the road, brought to you by the same bunch of inept bumblers, health care for everyone!

    I can hardly wait…

  • Jordan Richardson

    Scary times.

    All times are scary when you’re deeply paranoid…

  • Mark

    Oh yeah, Dave…I forgot.

    I guess that I’ve been working too hard on my own ‘cash for clunkers’ plan — for a short time employers could turn in their old workers for new ones whose wages would be subsidized by the feds…the old workers could be parted out with the remainder going into Government Sausage (thereby paying for the program).

  • http://thingsalongtheway.blogspot.com/ Cindy

    The woman who runs the business with me managed to get the full $4500 plus the dealer matched it, for $9000 off when she traded in her gas-guzzling Jeep. First she told me all the money was gone! Then she said, ‘but I made it.’ (She likes to see me jump up and down I think.) She picks up her new car today. She so deserves one.

  • Glenn Contrarian

    Gee, why is it I get the impression that if Obama personally invented tabletop fusion power, solved world hunger, and oversaw a worldwide conversion to democracy, the conservatives would STILL find a way to tell the world that the sky is falling and it’s surely Obama’s fault?

  • Baronius

    If so many more people than expected took advantage of the plan, then the government didn’t need such a large incentive per car. It’s a shame there isn’t a method by which parties can modify prices to create a more preferable outcome.

  • http://biggesttent.blogspot.com/ Silas Kain

    Damn. Lobbyists have been paying cash TO clunkers for years. Has anybody looked at how OLD some of these members of Congress are? I mean, I’ll bet half of them are too feeble to get through the first 5 pages of the 1,000+ page Health Care Bill. There haven’t been this many sexually frustrated old men in one place since the last Papal Conclave. Why hasn’t Geritol set up kiosks around the Rotunda? They’d make a fortune.

  • http://handyfilm.blogspot.com handyguy

    Apologies if someone else has already mentioned this, but Germany has a similar program, which allotted $9 billion for subsidies. In a much smaller country, they too will run out of money before the program officially ends in the fall.

    The US program was originally a $4 billion part of the February stimulus package. But in negotiations to reduce the size of that bill, it got shrunk to $1 billion.

    In some ways, it’s just a marketing gimmick. But I’m sure if they had it to do over, the administration would have made it a $25 billion program.

  • Clavos

    A “marketing gimmick” perhaps, handy.

    But, as I point out in the article, it’s done far more to actually stimulate the economy at the grassroots level, where it really counts, than any of those far more expensive bailout packages have done.

    Too bad the government, as it always does, has screwed it up so badly.

  • Glenn Contrarian

    So, Clavos – without sarcasm, what in your opinion does the government do right?

  • http://handyfilm.blogspot.com handyguy

    And Clavos of course, were he running the show, would have known in advance exactly how many people would make use of the program, would have made it exactly that size, no smaller, and would have removed all the administrative hurdles, most of which are there to prevent fraud, which could be massive on a program of this sort.

    Now that they know it’s popular, the Dems are likely to try hard to fund it adequately.

    You are, as you often do, just standing at the sidelines calling politicians names. There are, just possibly, more useful ways for you to activate your brain and spend your time.

    Your capacity for negative rhetoric is awe inspiring. That is not intended as a compliment.

  • Clavos

    Your capacity for negative rhetoric is awe inspiring. That is not intended as a compliment.

    Nonetheless, I’ll take it as one; I’m flattered.

  • http://handyfilm.blogspot.com handyguy

    By the way, one reason I referred to the program as a marketing gimmick was that in a NY Times article, the average trade-in value of the clunkers being junked was estimated at $4,300. That would seem to indicate that a number of the cars are worth more, and people might actually have been better off just trading them in.

    There is some benefit to getting polluting gas-guzzlers off the road, but the MPG requirements of the program were watered down in February to appease somebody at the same time the initial funding was cut by 75%.

    And the idea of completely scrapping a car [in part, to prevent fraud and gaming the system] seems wasteful in some of the cases.

  • http://handyfilm.blogspot.com handyguy

    A surprisingly fascinating interview with Alan Greenspan on George Stephanopoulos’s program today. A couple of nuggets:

    – The unexpectedly large response to the clunkers program is an indicator that consumer confidence [and thus the economy] are turning around. He said that if it had been tried 6 months ago, the program would have been a dud, because consumers weren’t ready to spend

    – The biggest threat to the recovery would be another deep drop in housing prices

    – We may already be at better than 2% annualized growth, because inventories are so low that production is revving back up

    – He agrees with the administration that controlling the growth of healthcare costs is central to deficit reduction

    – The deficit will force interest rate increases in less than 2 years and tax increases [maybe a VAT] within a few years. Eek. [He does not personally endorse the idea of a VAT.]

  • Clavos

    I would like to see Congress discuss Georgia Representative John Linder’s idea called the FairTax, but I don’t think it will happen because nobody has bothered to look into it well enough to understand it, so it usually gets rejected out-of-hand whenever it’s brought up.

    It has what appear to me to be a lot of positives to it, and I would welcome a discussion by knowledgeable economists and tax experts in Congressional committee sessions.

    As I said, ain’t gonna happen, though.

  • http://handyfilm.blogspot.com handyguy

    The problem with the Fair Tax is comparable to the problems with Nalle’s health care proposals: to enact them, you’d basically have to tear up the current system and start over.

    That may sound all bracing and reformist in principle, but the gigantic amount of disruption involved — and the inevitably, and possibly unpredictably, large numbers of winners and losers [compared to the current system] causes the proposals to have too many enemies.

    And there’s always the Law of Unintended Consequences.

  • http://thingsalongtheway.blogspot.com/ Cindy

    He said that if it had been tried 6 months ago, the program would have been a dud, because consumers weren’t ready to spend…

    The only credibility Greenspan has is when he admits he was wrong. Here are some of his past gigantic errors in prognostication–like calling bullish markets at the peak of bubbles he created.

    That people are still listening to advice from those who aided and abetted the current crisis is beyond my comprehension.

  • http://handyfilm.blogspot.com handyguy

    You are on a roll today, Ms. C. Do you have anything favorable or constructive to offer about anybody?

    I’m no Greenspan groupie, but he is smart and articulate and his opinion is of interest, even if only to disagree with it.

    Since he’s generally thought of as being on the rightward end of the economics spectrum, hearing what he has to say [mostly favorable] about a putatively ‘extreme left’ administration [at least according to the politics editor on BC and his acolytes] is not without interest.

  • http://www.republicofdave.com Dave Nalle

    The problem with the Fair Tax is comparable to the problems with Nalle’s health care proposals: to enact them, you’d basically have to tear up the current system and start over.

    You’re right on this, Handy, but you never get REAL reform without starting over. Instead you get garbage like this healthcare bill, full of half-measures and exceptions and even more unintended consequences.

    Dave

  • Bliffle

    Dave says:

    “…but you never get REAL reform without starting over. Instead you get garbage like this healthcare bill, full of half-measures…”

    IMO this reveals Daves failure to perceive the strategic brilliance (or, deviousness, if you prefer) of Obamas plan (as I perceive it).

    The problem is that one cannot start with a frontal attack and “starting over” because of the tremendous inertia in the legislative system. “Starting over” would require upsetting 60 years of progressive insinuation of power of vested interests, and the HillaryCare experience of 1994 demonstrates the futility of that course.

    So I think that Obama is employing a simple flanking movement: establish a new legislative structure, whether good or bad, that can be gradually amended in the future. In that sense what is important about the current healthcare bill is not the copious detail in the 1000 page full text bill, but the outline in the 4 page summary.

    Those bullet items in the outline represent future points that can be legislatively modified. What this healthcare bill does is take over the flanking territory and allocates that power pre-emptively to itself.

    It’s diabolical. But not unprecedented. Not at all.

    They say that Obama is a Constitutional expert, indeed, that he taught constitutional law. If you look at the Constitution, one is immediately struck by a peculiarity of structure: the Bill Of Rights were not integrated into the body of the Constitution but were added on afterwards. On purpose. But why?

    I can propose an answer, but I leave it (for now) to the Tyro Constitutional Scholar to contemplate. If any such care to exert their intelligence usefully instead of merely shoring up the opinions handed to them by bellowing propagandists of left and right.