Another Day In Omerica

The Cash for Clunkers (C4C) program has provided an important lesson that Congress must take to heart. The scheme which the Obama administration hoped to both stimulate auto sales and get fuel-inefficient vehicles off the road, has turned out to be hugely popular ‘Failure’. Cash for Clunkers has ended up being the worst government intervention masterminded by the Obama administration so far. The law empowered the National Highway Transportation Safety Administration (NHTSA) to create the Car Allowance Rebate System (CARS) to administer the stimulus money. Environmentalists are unhappy, however, because the original guidelines for the program were so watered down that it’s all too possible to buy a new car that has only marginal fuel economy improvements over the old clunker. People are buying new Ford trucks to replace their old ones, instead of Priuses in exchange for Hummers. Or so we hear from anecdotal reports — we don’t have good data yet on the breakdown of the new purchases, which has led to some Senators declaring that they won’t vote to authorize funding unless the environmental rules are tightened, or there is evidence that the program is working as planned.

Whatever the mpg improvement of the new car over the clunker, premature scrapping of functioning vehicles is hardly a contribution to environmental sustainability. In addition, C4C buyers may well drive their higher mpg cars more miles per year than they did their clunkers. And two car families that traded in their old SUVs for high mpg sedans may later trade in the existing family sedan for another SUV, resulting in minimal mpg improvement on a per household basis. Each clunker required dealer salespeople to complete 11 forms, the online computer system set up by Citi was slow and sometimes crashed, and extra workers had to be hired to process C4C claims. Only $145 million of $1.9 billion in claims have so far been refunded to dealers. Ironically, GM and Chrysler are using taxpayer bailout money to advance dealers the refund money they are waiting for from the US government! In the end, administration expenses might well reach 10 percent of total program costs.

The NHTSA website 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. Some has not been paid today. The 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. 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. 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. Dealers now have hundreds of thousands of dollars tied up in CARS reimbursements and only a small percentage has been repaid. Here’s the figure: $2.878 billion. That’s how much money the government owes car dealers for the “Cash for Clunkers” program. Now that the popular program has ended, many dealerships are asking the federal government to “show them the money.”

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