Marketplace Scratch Pad

GM bails out cash for clunkers

Scott Jagow Aug 20, 2009

How’s this for turnabout? GM plans to “rescue” the federal government’s cash for clunkers program by advancing cash to dealerships. It also appears cash for clunkers is about to be tossed onto the scrap heap.

Dealerships are happy to get the extra sales provided by c4c, but they’ve been paying the rebates themselves with the expectation of getting reimbursed by the government. Now, GM’s saying it’ll cover those rebates and take on the task for waiting for the government payback.
From the New York Times:

Some dealers have pulled out of the program, formally known as the Car Allowance Rebate System, saying it was costing them too much time and causing cash-flow problems. A dealers group in metropolitan New York said about half of its 425 members had stopped participating as of this week…

Only a small fraction of the reimbursement requests have been paid. The Transportation Department is tripling the number of workers processing the forms to ease the backlog.

“I don’t know one dealership that’s gotten paid yet,” said Laura Sodano, a sales manager at Curry Chevrolet in Scarsdale, N.Y. “If they run out, we’re in trouble. It’s bringing us a lot of traffic, but it’s not a very good program.”

Meanwhile, the Wall Street Journal reports that the government is ready to pull the plug on c4c:

(Transportation Secretary Ray) LaHood said that within two days he would outline how the administration will end the program while ensuring all vouchers issued by dealers are reimbursed. “They’re going to get their money,” Mr. LaHood said.

When to end the program is a tricky question. The administration is closely watching the money remaining in the program, and expects there to be a surge in last-minute clunker deals once an end date is announced, said the person familiar with the matter. The administration wants to avoid having dealers agree to sales after all the funds have been used up, this person said.

Why do I have the feeling it’ll be impossible to keep that from happening?

As for killing cash for clunkers, at Daily Finance, Doug McIntyre writes this:

Why would the government walk away from such a successful program? First, it drains money from other projects in the stimulus package. The $3 billion is not new money approved by Congress. It has to come out of already allocated funds. The second is that the Administration may believe that the car industry can get back on its feet on its own. The economy seems to be recovering a bit. The 2010 models should drive interest among new buyers.

The government could be making a big mistake, especially given its huge investments in Chrysler and GM. The end to the program could cause vehicle sales to collapse back to their first half levels and auto companies could bleed red ink again. A few billion more for cash for clunkers could be money well spent.

I’m inclined to disagree. It does seem to be decent stimulus, but car sales will collapse, at least temporarily, no matter when this program ends. C4c is a drug. It even sounds like one. At some point, the car makers need to stop relying on incentives. The car-buying public is addicted to them. Not to mention, these particular incentives are being paid for by the taxpayers.

On a separate note, it’s encouraging to see GM responding to the car-buying public. The company just canceled plans for a new Buick hybrid SUV because online, people completely trashed it. From Bloomberg:

One blogger called it “hideous” and users of Twitter dubbed it the “Vuick.”

“We were all struck by the consistency of the criticism,” (GM Vice Chairman Tom) Stephens wrote. “It didn’t fit the premium characteristics that customers have come to expect from Buick.” He didn’t elaborate on the vehicle’s shortcomings.

The decision to cancel the Buick was based on all of the input, face-to-face, blogs and tweets, Christopher Barger, GM’s spokesman for social media, said in an interview. No matter how they expressed it “they just didn’t like it.”

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