The Cash for Clunkers program, which offers up to $4,500 to consumers who trade in old, inefficient vehicles for fuel-efficient new ones, has been so successful that the U.S. government recently decided to give it $2 billion to continue. In addition to injecting much-needed cash into the automobile industry, the program has allowed dealerships to sell vehicles in quantities unseen for years. So why have half of the 425 members of the Greater New York Automobile Dealers Association pulled out?
It turns out that dealers pay for customer rebates out-of-pocket and wait for government reimbursement. But—surprise, surprise—the massive amount of paperwork from car dealerships has caused an administrative backlog, and many claims remain unpaid. The New York dealerships, in fact, have only been repaid for two percent of all Cash for Clunkers deals made so far. The problem stems at least partially from the fact that while the Clunkers program began on July 1, claim processing didn't begin until July 24. That's all well and good for dealers who can afford to wait to be repaid, but many have run out of cash and don't have the means to continue Cash for Clunkers.
The problem isn't limited to New York. One Waco, Texas dealer is waiting on reimbursements for $80,000 in rebates that he paid out of pocket. Another Colorado dealership has yet to be paid for 138 rebates. Even though the government claims that all payments will be doled out in due time, lost faith in the Cash for Clunkers program on the part of dealerships may make future programs (like an electric vehicle Cash for Clunkers deal) impossible. Because after this debacle, few dealers are going to take it on faith that the government will pay up.