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Cash for Clunkers Failed The Automotive Industry

An Open Letter to Automotive Professionals:


The Cash for Clunkers program has provided an important lesson that Congress must take to heart at this time when other sweeping measures such as national healthcare reform are being considered.

The concept of creating a stimulus package for the automotive industry had its share of detractors, but the measure was passed by Congress and was signed into law on June 24, 2009.

The law empowered the National Highway Transportation Safety Administration (NHTSA) to create the Car Allowance Rebate System (CARS) to administer the stimulus money. The NHTSA website provides a copy of the law which includes this statement:
“The (NHTSA) Secretary shall promulgate final regulations to implement the Program not later than 30 days after the date of the enactment of this Act.”
The law also requires the NHTSA Secretary to set up an Internet website not later than 30 days to support the needs of consumers and dealers.

I am deeply concerned about the wisdom and choice of Congress to mandate a 30 day window to implement a completely new national program that required the voluntary participation of over 20,000 car dealers in all US states and territories.

Americans need to understand the impact of legislators rushing to meet a perceived need without taking the time to consider implementation timelines.

On July 24, 2009, The Final Rule document was released by the NHTSA and delivered exactly 30 days after the enactment of the bill. The NHTSA advised dealers that they could register for the program three days later on Monday July 27, 2009.

Once the dealers’ registration information was entered and confirmed, they could start entering sales for reimbursement. Monday was also the day that the wheels fell off the CARS "cart".

The NHTSA website had no time to be stress tested. It could not handle the thousands of dealers registering simultaneously. This resulted in weeks of dealer registration delays, further complicated by letters improperly mailed from the NHTSA to dealers with wrong dealer registration codes.

The NHTSA website also could not handle the volume of sales transactions being uploaded for reimbursement. Car dealers were forced to spend hours to enter a single sales transaction. Dealers had to require their staff to work through the night to enter sales when website traffic was lower. The failures of the NHTSA website decreased dealer confidence in the program and raised concerns about the reimbursement process and payment timelines.

NHTSA reported that when dealers were able to upload sales documents, 80% were rejected as incomplete. The high rejection rate confirms that the NHTSA could not properly train dealers in the time allotted by Congress.

The NHTSA initially chose to hire 100 employees to review sales applications; a few days later they tripled that number. In the first official week of the CARS program over 200,000 sales were made which would give every employee about 7,000 cases to inspect, review and approve.

Dealers under the law are entitled to be paid in 10 days after their sales transactions are approved. This workload from the initial $1 billion in funding alone would take over a month for staffers to review and approve dealer submission. Imagine the backlog at the NHTSA when you consider that over 600,000 qualifying CARS sales are likely to be completed by this time.

Dealers now have hundreds of thousands of dollars tied up in CARS reimbursements and only a small percentage has been repaid. The implementation compelled some dealers to create sales contingency contracts to protect themselves from unintended financial losses. This has infuriated consumers; a practice recently denounced by the NHTSA.

Dealers must now brace for thousands of lawsuits claiming that they haved violated program rules and NHTSA guidelines.

This well intended government stimulus program was rushed to market. Consumer confidence that our government can enact fast tracked national reforms has been damaged.

NHTSA Secretary Raymond LaHood should have spoken up and demanded that the 30-day startup clause be removed. The fact that the NHTSA was unable to remove this language is the lesson that we must take away from the Cash for Clunkers implementation chaos.

Was one of our top government agencies, entrusted with billions of dollars, ignorant of the real life requirements of a program that must work cooperatively with the private sector, or was its voice silenced by political expediencies? Did the automotive lobby have that much influence on Congress to push such an unrealistic start-up schedule?

The potential answers are frightening.

I hope that the clear lessons learned from the Cash for Clunkers program are at the forefront of the minds of the legislators who are eager for fast track changes in our healthcare system.
Brian Pasch, CEO
Pasch Consulting Group

Creators of www.cashforclunkersfacts.com

brian@paschconsulting.com

Views: 10

Tags: 30days, cars, cashforclunkers, failed, nhtsa

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Comment by Ralph Paglia on August 18, 2009 at 7:20pm
One of the most important points that Brian makes in his article is that there are differences between concept, planning and execution. In order for such a large national program to function properly, their needs to be more than a sound concept... And, regardless of planning thoroughness, there must be an adequate amount of time allowed for execution. In this particular case, as much as everyone wants to complain, the fact is that the program accomplished it's intended objective, stimulating retail auto sales. The pollution reduction and MPG savings were merely a stage device to trick the audience into thinking there was some altruistic benefits. Even an old clunker can run for many years without equally the pollution produced in the manufacture of a new vehicle and the scrappage, of the clunker. All the research showed that there was no ecological gain on replacing old clunkers by manufacturing another car. But, the program was ALWAYS intended as a SALES STIMULUS, which it has accomplished.

The real issue is the damage caused to dealers by the program's 80% failure to function properly by getting the cash to the dealers. In this respect, the NHTSA deserves to get fired for the incredibly poor job they have done... Unlike Brian, I do not believe there would have been any difference in the piss poor job the NHTSA is doing whether they had 30 days or 30 months to prepare. The NHTSA gives the word "Bureaucracy" a bad name, the organization has been a dysfunctional train wreck since its inception. Doesn't anyone remember how long it took that same organization to realize that seat belts were something that should be installed in every car? Remember those goofy automatic seat belt fasteners that cost car companies millions because it took the NHTSA 24 years to figure out what a seat belt should be required to do? How about the stupid air bag implementation fiasco? And we thought this same organization could handle 22,000 dealers trying to get their money??? The reality is that the NHTSA was the WRONG government agency to have been selected to administer such a program... What does Highway Traffic and Safety have to do with a new vehicle rebate program? Also, the money should be paid to dealers first and discrepancies used to trigger full audits. The government pays out trillions each year in tax refunds based on a signature on a Federal Tax return, why can't dealers submit their forms and get paid, subject to audits when indicated?

PAY THE DEALERS FIRST AND THEN HAVE THE NHTSA STUDY THE FORMS FOR THE NEXT 24 YEARS TO SEE IF THERE IS SOMETHING MISSING THAT SHOULD RESULT IN A CHARGE BACK!

Using the NHTSA to administer ANY program that pays out money is just like the opening scene to the old TV series "F Troop" where they put the near-sighted soldier who can't see past his outstretched hand in the look out tower to scan the horizon for Indians on "Orange" Level Homeland Security Alert!
Comment by Keith Shetterly on August 18, 2009 at 11:15am
If you do the math at, say, $2billion submitted so far and less than 5% paid, that means that the 23,000 dealers across the US are currently self-financing $1.9billion waiting for the gov't pay out. At 4% interest, that's about $75million dollars APR or $6million a month . . . and somewhere there's banks collecting a big piece of that. What a surprise.
Comment by Clarence U Romero on August 18, 2009 at 10:02am
I think the idea behind it was good, but 4 out 5 rebates are being rejected, and the dealer is now having to try to recoup this money back from the customer. I think instead of destroying the vehicle maybe have the goverment have a bunch of metal and other recycling companies buy these parts and have the money come that way, instead of it coming straight from tax dollars.

The way it's at now, it doesn't stimulate anything. Dealers are selling more cars, but once the program is over, you will have a dramatic drop in sales. All we are doing is pulling customers from future sales, as did all the lease and finance comanies when they offered to end leases early, and cash back if you trade early.

I do agree with cleaning up pollution, but vehicles $4500 and under aren't the total problem. The fact is that the majority of folks still can't afford a new vehicle, so these problem vehicles will still be sold.
Comment by Keith Shetterly on August 18, 2009 at 9:32am
C4C is hard to turn down for a dealer, even with the issues. Dealers that didn't or don't participate lost business--even if the deals didn't qualify, they still got a chance to sell a customer on their trade-in's value towards a new car. Essentially, it drove traffic to showrooms. And, for us, it wasn't the special finance customers we saw first or the most: The first weekend we ran it, our beacon average was almost 800.

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