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