Cash for Cars: Congress Quickly Refunds Surging Program

After a spectacular launch about a week ago, the "Cash for Cars" program ("Cars for Clunkers") ran into a roadblock Thursday when they ran through the first $1 billion that was set aside for the program as buyers came back into showrooms to take advantage of the $3,500 to $4,500 government-backed rebates that have been offered as part of the program.

The program is being run under the aegis of the National Highway Traffic Safety Administration and the Department of Transportation and its aim is twofold: 1. To jumpstart the sagging auto industry and 2. To get people into more fuel-efficient vehicles.

There are some interesting twists to the program such as the 126-page manual that "must be followed to the T," say the federal people running the program and the vehicles must get 18 mpg or better to qualify. They also have to be new vehicles, not preowned.

Another interesting feature is that dealers are allowed to pay the "scrap price" for the trade, less $50 for administrative costs.

And while the money hasn't even started flowing from Washington yet, just the promise of it and the federal enactment, dealers sold 23,000 new cars in the first five days of the program and the initial investment was already sold out. Congress acted on Friday by pumping another $2 billion into the program.

This hasn't stopped people from complaining - it seems like it's a national habit to complain about cars and dealers. Dealers, believe it or not, are bouncing into and out of the program like yo-yos (one Midwestern dealer had been in and out three times) and are complaining about the paperwork requirements and the fact that they have yet to see any money.

Taxpayers, on the other hand, if you read any blogs are complaining that the government is laying out our tax money to bail out the auto industry and they generally don't think that this is fair. (It would be interesting to imaging that if this were the cabinet-making industry there would be those who would complain about the government bailing out the cabinet industry.)

To say that this is a necessary bailout is putting it mildly. It has been estimated that fully 1 in 6 workers is in some way related to the auto industry, whether in manufacture, working directly for the automaker, working for a hauler, working for a parts maker. The list goes on and on.

The figures saying that the industry needs help also bear this out as sales two years ago were in the 15 million vicinity and last year dropped to about 12 million. This year they were on track for about 8.5 million.

Even crack salespeople with long careers were finding their paychecks suffering.

Actually, if really doesn't matter what the blogosphere thinks about this program because it is a program that is the right thing at the right time.

Dealers are advertising "Cash for Clunkers," and Chrysler is advertising that it will match the $4,500 maximum credit with $4,500 in cash back. You see the way the program operates is that the auto dealer has to include any incentive money that would normally be included with the deal to make this happen.

And, like any federal program it has lots of layers of paperwork and from what has been heard from dealerships traffic hasn't been this heavy on the showroom floors in a long, long time. Why would it not be if folks could get new cars and have the U.S. foot a good portion of the bill?

For consumers, though, there are some things to watch out for. Be aware of the "scrap" value of your car. You can find this by using the "Black Book" listings now offered by most dealerships or you can go to www.kbb.com (Kelly Blue Book), feeding in all of the information about your car and then looking at the trade value and not any other value. Then, look at the "poor" to "fair" amounts listed and that should put you in the ballpark of what you might be offered for your car. Yes, dealers do this and it's pretty accurate. Forget the "excellent" or even "good" value because you won't get it.

You might also want to get a subscription (temporary, if you can get it) to the Galves Publishing site. This is practically the bible of the auto trade industry. Galves works on the latest auction figures and tends to be very conservative. Try looking at www.galves.com and see what it takes to open a temporary account.

Don't think you'll get top-dollar for your vehicle because you won't, as dealers will try to maximize their own return. You will be given the low-ball figure for your trade (the scrap figure and the dealer will likely try to pin an extra $50 on it so that he won't have to absorb the $50 he can take out of the "scrap" fee, anyway, although he may not, it's hard to know). Be sure that if you have a relative who works for the automaker use whatever special plan might be available, too, so you may be able to save more, unless, of course, the relative wants a great deal.

You will be charged a "documentation fee" of up to $300, depending on the dealership (this is a paperwork figure that's supposed to cover getting the car titled and to pay for any office overhead that this costs) and you will also have to pay some sort of registration fee, whatever your state's may be, and don't forget the sales tax (in MA it just went up to 6.25 percent today).

The "Cars for Cash" program may be the shot in the arm the industry needs. Already dealers are reporting they are running out of inventory, but at the same time they are complaining they have yet to see any money from the program. That money will be forthcoming in about 45 days or so. However, by that time the cars sold now will be rolling and burning gas and a whole new set of buyers will be coming in because this program will run until November 1.

Will people come to expect the government's hand in every car sale from now on? It's impossible to say. What is possible to say, right now, is that this program couldn't have come at a better time.

And, despite people blogging about boondoggles and wastes of money and the government's hands on our money again, this is a program that benefits everyone, even the complainers.