NHTSA Ends "clunkers" as Program Succeeds

Officially known as the CARS (Car Allowance Rebate Program), the "Cash for Clunkers" program has proven such a success that it is being ended early so that there's enough cash to pay for all of the clunkers.

According to the Associated Press and New England Satellite News Network (NESN), the Obama Administration is shutting down the program at 8 p.m. Monday to ensure there is enough money to fund all of the deals written since the program began in July. Because of the timing, this is expected to be a busy weekend at many dealerships as people try to get a last-minute "clunker" deal.

Funded originally with $1 billion in seed money, NHTSA expected this first round of funding to last for a month and it was expected that about 40,000 gas-guzzling "clunkers" would be taken off the road. The terms of the program were that to qualify for a $3,500 to $4,500 rebate a vehicle had to have been built within the last 25 years and its mileage had to be below 18 mpg.

No one could have speculated on the depth pent-up demand for a program like CARS. Within a week-and-a-half of its announcement and implementation, the "clunkers' program had eaten up the initial $1 billion and the House and Senate were under pressure to find at least $2 billion more in funding. This second round of funding and the speed with which it was needed surprised many people, although it really should have been no surprise.

When the program was first discussed as early as last June, the administration announced it might need as much as $4 billion to take care of the demand. That $4 billion would translate into about 1 million vehicles. This information was gleaned from information published at the time discussing the program, although critics have overlooked that part of the whole story.

Indeed, opposition to the program considered the $1 billion, the cap for the program and were outraged when the second round of funding was sought at the end of July, according to news reports. And, now, a little more than three weeks after another $2 billion was added to the program, the administration announced this morning that the program would be ended Monday.

Transportation Secretary Ray Lahood, quoted in the Detroit News, indicated the CARS program had achieved its aims. He believes it has "jump-started a major sector of the economy, putting people back to work." He also noted that it had taken a number of inefficient clunkers of the road.

Up to this weekend, according the NHTSA, the program has taken 457,457 inefficient, gas-guzzlers off the road. At the same time, it has helped dealers to clear out their inventories as they watch efficient cars drive off.

Ford, for the first time in months, increased production of its Focus subcompact and its compact SUV, the Escape as dealers saw their inventory dry up and General Motors recalled 1,350 autoworkers to its Orion, MI plant, which is schedule to produce the Chevrolet Cruze and Volt.

There are issues at work in this as this program is ending.

First, as discussed not only by national auto dealer groups, but also by state auto dealer groups such as those in MA and NJ, there was the demand. The NHTSA failed to recognize the demand for such a program and properly failed to scale up for it. The agency was so slow in returning funding that many dealers have opted out of the program, the Detroit News, noted today.

For example, NHTSA did not announce until Wednesday that it was tripling the number of claims processors for "clunkers." It had tried to process the deluge of incoming vouchers for the program with its regular workforce and quickly got behind the influx.

It some cases, it might have been a case of ping-pong for these vouchers, as dealers resubmitted them, only to have them rejected again by the processors.

As noted earlier this week by the American Automobile Assn., dealers had to be sure that "all the 't's were crossed and all the 'i's were dotted" before they submitted their paperwork. Many times, dealers were hasty in their voucher preparation.

The director of the NJ car dealers association had heard of dealers who had had 80 percent of their submissions rejected. He had also heard that only about 3 percent of the money owned to dealers had been paid to them. Indeed, that is another reason cited for ending the program Monday. To date, about $1.91 billion of the total $3 billion has been allocated by NHTSA and they are ending the program Monday so they can be sure there is enough funding to pay dealers.

With the amount of money apparently owed, General Motors and Chrysler stepped up and announced that they would fund the vouchers that their dealers had placed so that dealers wouldn't end up owing millions. (Dealers actually "buy" their cars from the manufacturers under floorplanning and they have to go to the bank to borrow money to fund the cars on their lots so if dealers were not being paid fully for their vehicles, as they had to wait for $4,500 vouchers, then they could be owed substantial funds.)

One dealer reported this week that he was owed about $60,000 by the "clunkers" program. Another dealer reported that last weekend he had had 16 "clunker" sales and was owed substantially for the cars.

This is all moot as of 8 p.m. Monday night as the "Cash for Clunkers" program is ending.

Sources: AAA, NJ Dealers Assn., MA State Auto Dealers, Detroit News