Cars for cash program has dealers revved up
By Ambrose ClancyLI Business News
August 7, 2009
Sales manager Mark Schwartz was looking out the window of the Smithtown Toyota showroom when a 21-year-old Dodge
Ramcharger chugged onto the lot. He turned to a salesman and smiled, “Oh, yeah, this guy qualifies.”
Indeed, the owner of the Ramcharger, Stephen Denehan of Smithtown, qualified for the wildly successful federal “cash for clunkers” program. An hour after hitting the lot two weeks ago, Denehan drove away in a brand new RAV4, paying about $23,000, with a down payment of $4,500 paid for by Uncle Sam.
Officially known as the Car Allowance Rebate System, the program gives federal rebates of up to $4,500 to consumers if they buy a new vehicle which gets more than 4 miles per gallon than their current ride. The dealer then makes the engine of the clunker inoperable.
The idea is to boost auto sales at the manufacturing and retail level, give consumers a direct payment, and take inefficient and polluting vehicles off the road.
It’s one government program that worked too well. Originally granted $1 billion to fund the rebates, CARS ran out of cash the last week of July, only a week after it kicked off.
The House of Representatives immediately voted overwhelmingly for another $2 billion to keep the program in gear. But the bill is still being debated in the Senate, where some Republicans claim CARS recklessly increases deficits and is an unnecessary continuation of the auto industry bail out. The program will grind to a halt if the Senate fails to pass the House’s bill.
Every member of the Long Island congressional delegation voted for the original bill to create the program except for Rep. Peter King, R-Seaford. King changed his mind and voted to add funds to CARS, not because it’s hard to argue with success, but, he said in a statement, “To stop it abruptly would have caused unnecessary chaos to an already troubled industry.” (Rep. Carolyn McCarthy, D-Garden City, was immobilized by back surgery and couldn’t vote for the extension.)
Schwartz said in the past two weekends about 30 cars have been sold off the Smithtown lot due to the program. “I was called in last Sunday, which I usually have off, to deal with the traffic in the showroom,” Schwartz said. “It’s unbelievable.”
Mark Schienberg, president of the Greater New York Association of Auto Dealers, said the 260 Long Island dealers he represents saw increases of anywhere from 50 to 100 percent in sales over a normal summer weekend.
CARS has been oxygen to dealers needing life support. In the past 13 months 24 dealers have gone under and those remaining have seen sales off up to 45 percent.
Nationwide, more than 250,000 rolling bombs have been taken off the road replaced by new vehicles with much higher fuel efficiency. The Department of Transportation said the cars purchased have a miles-per-gallon rating of 28.3, on average.
“I was getting 10 miles a gallon with the Ramcharger,” Denehan said. The Rav4 averages 22 mpg for city and 28 for highway driving.
The only downside dealers have reported is impenetrable government bureaucracy and having to get up to speed on regulations. “When I saw the 136-page book on regulations I was hoping the movie would have come out first,” Shienberg said.
Each transaction has to be logged into a government Web site and information scanned in. On the other end, the government has to review all documents and then get back to approve or disapprove the deal. With 250,000 transactions in a week’s time, the Web sites were crashing right and left, Schienberg said.
Also, Schwartz said a glitch in the law to render the clunker inoperable was confusing. There was no question about how to permanently ruin an engine – drain all fluids, pour liquid glass though the machine and run it at 2,000 rpms until it seizes, then tow it to a junkyard. The problem was the original regulations stated that before a transaction is approved, the vehicle has to be inoperable. This meant if a customer or a dealer wanted, for good reasons, to back out of the deal, the customer was not riding but walking off the lot.
The new bill passed by the House gives dealers seven days after the transaction is complete to make the car useless.
Another problem – some would say a nice problem to have – is vanishing inventory.
Early Tuesday morning Clifford Korade, vice president of Sayville Ford, was in his office with a computer, a calculator and a pad and pen, trying everything and anything to get more new Fords on his lot.
Business the last two weekends has been up more than 50 percent, and the earliest he can expect new cars will be by midmonth, he said.
Regulations had been a problem, but the upside of CARS had trumped bureaucratic thickets. “Rules are rules,” he smiled.