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‘Cash for clunkers’ is administrative nightmare

Tuesday, August 25, 2009

Daniel Howes

‘Cash for clunkers’ is administrative nightmare

At Central Avenue Nissan in Yonkers, N.Y., they love "cash for clunkers."

At Downtown Ford Lincoln Mercury in Canton, Ohio, they love it, too. Lots of cash deals; few cases of bad credit; gross profit per vehicle up "a couple of hundred dollars."

At the Grand Blanc-based Serra Automotive Group, with 38 franchises at 21 locations in six states, the boss appreciates that the controversial federal incentive program has consumers thinking cars after a year of mostly doing anything but.

Sales are booming. Inventory is thin. Customers are swarming showrooms, hungry for sweet, stackable deals (cash back from the automakers plus a cash-for-clunkers rebate of as much as $4,500) that can cut the price of some eligible vehicles in half.

All good, except for one thing: Many dealers still aren’t getting paid. The bureaucratic maze is ridiculous: 156 pages of regulations governing 13 pages of forms are mated to a computer system that mostly is failing to accommodate demand from dealers across the country.

Brad Black, general manager of Downtown Ford, told me Monday his dealership has delivered 73 vehicles under the federal program but has received reimbursement for just one car.

"We’ve got a lot of money hanging out there," he says, "a lot" being roughly $330,000. "Every time you sell a car you reach into your pocket for $3,500 or $4,500. That’s a lot of money and it comes right out of working capital."

Not that they’d understand such a simple business principle — cash flow is the lifeblood of small businesses like car dealers — in Congress or the Department of Transportation. Which is the problem, whatever your philosophical take on the simple fact that public money is being used to spur sales for a (mostly) private industry and its dealers.

"We’ve gotten paid nothing at this point, absolutely nothing," says Jonathan Grant, principal of Central Avenue Nissan, Central Avenue Chrysler Jeep and two other dealerships in Westchester County north of New York City. Altogether, Grant has about $800,000 on the line.

"It’s blind faith at this point that we’re going to get the money. We’re trying to input stuff today and they can’t get in. The computers are overwhelmed. It’s a great program for the manufacturers, a great program for the consumers. For dealers, it’s been an administrative nightmare."

And the Obama administration and its allies in Congress propose to overhaul (and potentially run) health care for more than 300 million Americans? Let’s just say cash-for-clunkers doesn’t inspire much confidence in Washington’s bureaucratic acumen. Or its speed. Or its feel for a functioning market, the demands and expectations.

Serra Automotive has booked 650 cash-for-clunker deals, but as of Monday morning only 8 percent — about 50 vehicles — had been approved for payment by the government, says Joe Serra, president of Serra Automotive. Meaning he’s taking a $2.6 million cash hit while his customers already are driving their new vehicles.

"If that doesn’t happen, we’ve got issues," he says. "That will crumble me. We just don’t have that kind of cash lying around these businesses, especially after the year we just went through."

Will the dealers get paid? Probably, because failure to do so would be a PR disaster of epic proportions. Will the program prove to be the jumpstart languishing auto sales need? Debatable, though depleted inventories already are forcing increased production schedules across the industry.

The more important question, it seems to me, is what the obvious administrative failures of cash for clunkers say about the federal government’s capability to manage programs more typically run by the private sector. And, secondly, why is there a clamor for more of the same?

Auto dealers are in business to make money selling cars and trucks, not to serve as conduits for federal transfer payments. If nothing else, cash for clunkers proved Americans still love good deals — and that their government cannot process them.

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