GM Bailing Out Dealers Holding Lots of "Clunkers"

No one could have foreseen the success of the "Cars for Clunkers" program when it was announced in late June, although when the first funding of $1 billion was spent in less than a week NHTSA should have taken notice.

The problem was that the federal agency was not acting with urgency. Dealers were seeing Saturdays where they were selling 15 or more new cars and taking in "clunkers" for trade.

The problem dealers had was the rejection rate. One dealer had four of five deals rejected by the federal agency. And, according to the group representing auto dealers in New Jersey, for example, only three percent of the approvals were being funded.

Recognizing this as a huge problem, General Motors stepped up today and announced that it would fund all "clunker" deals so that dealers would not be left with huge debts as they sold new cars for "clunkers" and the money trickled back.

Indeed, according to televised news reports, dealers were dropping out of the program, owed millions, the National Auto Dealer Assn. said. So some entity had to act and GM took the bit in its corporate teeth to help its struggling dealers.

So far, though, GM is the only automaker taking this stance. Some dealers, owed huge sums, are waiting on government actions and Transportation Secretary Ray LaHoud said today that all deals would be honored and money would be paid. "No dealer will go unpaid," he noted.

"Cash for Clunkers" has been the hit that the Obama Administration had hoped it would be, but no one could have foreseen the issues it would bring. Indeed, the program's success has been such that GM recalled 1,350 laid off workers at its Orion, MI to put more inventory into the pipeline as dealer inventories have been shrinking at rapid rates.

Indeed, authoritative sites such as Edmunds.com and other web publishers indicated GM's inventory of 300,000 cars was a record low for this time of year.

In its recall statement, GM noted that Orion was scheduled to become the production line for the "B-car" line of the future.

It's recall statement made it clear the automaker believed and welcomed the 1,350 laid off autoworkers back because of the success of the "Cash for Clunkers" program.

The Orion plant had been slated for shutdown in September to begin its transformation into B-car (Chevrolet Cruze and Volt and similar models) manufacturing but now that has been stayed until at least November and workers who had been furloughed are now back at work.

Right now, it looks like the workers are just coming back on line to refill a pipeline that had been rapidly emptied by the successful "Cash for Clunkers" program, CNN has reported. And, not only will this program directly affect the lives of 1,350 laid-off workers, the automaker fully expects that due to the number of vehicles it needs to put back into its pipeline that at least another 10,000 people will see their paychecks helped by the recall.

It's not that something like this should have been entirely unexpected as dealers have been reporting, not only here, but elsewhere that their inventories were dropping rapidly and that if a consumer wanted a specific combination or color then that consumer had better get over to the dealer as quickly as possible in order to get the color or color/options package that the buyer wanted.

NHTSA, just this morning, according to CNN, changed the very complexion of the program when it allowed cars that one could order from the factory to be included into the program. This just makes things more frustrating for dealers like New Jersey dealer Craig Ploetner, principal of the Thorne Auto Group of Union, NJ, has more than a dozen deals for which he is awaiting funding from the National Highway Traffic Safety Administration, administrator of the CARS program.

"I've gotten rejection after rejection. There's no logic to it. The administration of it (CARS) is a disaster," Ploetner told the Newark Star-Ledger. It's like trying to deal with computer programs of 15 or 20 years ago."

Ploetner is to the point of pulling out of the program and will not accept any more "Clunker" deals until he "sees some of the money - tens of thousands of dollars" he's owed. "I won't do it anymore."

To that end, the administration announced yesterday that it was tripling the number of people who will be handling the paperwork for the CARS ("Cash for Clunkers") program.

Jim Appleton, director of the New Jersey Coalition of Car Dealers, told the Star-Ledger that he is receiving similar reports from other dealers around the state and that dealers may be receiving approval for only half the deals they submit to the "Cash for Clunkers" program.

He wouldn't go as far as dealers have when they criticize the program. He indicated that the hurried way in which NHTSA had to pull together a program to administer $3 billion in voucher money was bound to have problems. "They were under a very difficult project and one that everybody underestimated. NHTSA was asked to set up a $3 billion operation over the course of a couple of weeks. The processors and programmers they brought in to the task" could only do so much, he indicated. He indicated they responded as well as they could to the problem.

Interestingly, this comes at a time when Edmunds.Com believes interest in the "Clunkers" program has peaked. They have seen a 31 percent decrease in interest in the program since it was first announced in July. A spokesman for Edmunds noted that those with the worst of the "clunkers" out there have already made their deals.

Still, no one really knows where the "Cash for Clunkers" program is financially. Appleton indicated the program could be out of money and no one would know. Right now, he indicated, dealers have received only about two percent of the money that is due for reimbursement. "Four out of five applications are being rejected for problems," he noted.

National AAA spokesman, John Townsend, pointed out in another interview that dealers have to be very careful when filling out the federal applications. "You have to cross every 't' and dot every 'i,'" he said. Many dealers, he noted, are just rushing their paperwork in to receive reimbursement.

This also explains a comment made by a MA dealer executive who wished to remain unidentified. Asked about the program, he noted, that he was happy he wasn't involved in the "Clunker" program and he noted that he was glad that he didn't have to chase all the paperwork involved. "Let those other guys do it," he said in a brief phone interview.

General Motors, for its part, believes that the recall at the Orion plant is part of a broader trend. It may only be wishful thinking, but, the automaker's Tim Lee, General Motors vice president for global manufacturing, told CNN that the sales increase dealers are experiencing, thus cutting inventories, "is an encouraging sign that things are turning around and we will ramp up quickly to meet the demand."

For the 1,350 at Orion, MI one thing is certain, though, they are now back to work building vehicles and receiving pay and for them that's a very good thing, indeed.

Sources: CNN.Com, AAA.Com, Edmunds.com