Cash for Clunkers: Beater or Benefit?

If you’re a car dealer who enjoyed the sales benefits of last year’s Cash for Clunkers program, watch out: Here comes The Man. And he’s not looking for money – he can just print more of that – but something far more precious to the bureaucratic monster that is Washington DC.
Paperwork.
In case you forgot to fill out your forms properly, or in case you, um, forgot to get those clunkers destroyed, you may get a visit from government auditors. According to the National Highway Traffic Safety Administration(NHTSA), fraud investigations are focused on four key areas:Improper Use of Trade-ins: There are allegations that some dealerships sent to-be destroyed vehicles overseas.
Improper Payments: Letters to dealers resulted in over $800,000 of improper payments being returned.
Missing Junkyard Reports: Seven of 22 junkyards have not filed the appropriate paperwork.
Confusion over Paperwork: Dealership forms missing key elements of the required paperwork

According to an August 28, 2010 article by ABC News and USA Today: At least 20 dealers out of the 18,915 that participated are being investigated, and that up to $94 million in rebates may be ineligible. NHTSA claims that about 22,000 transactions may be ineligible due to missing paperwork.

That’s it? Just over 3 percent?
If you’re familiar with the business end of the program, you’re likely amazed. If you’re not, you should be, because the program rules and regulations were at the start complex, and, most of all, driven by a claims process that severely underestimated demand.

But here’s the thing: did this $3 billion hullalaboo help, or hurt? Certainly the program increased sales, but one year later the benefits of the program are in question, compared to the potential long-term consequences. Edmunds, for one, is now forecasting an 18 percent decline in sales for August thanks to what many consider to be the sales  “pull ahead” caused by the program. On the surface, this may look like a sales reporting mirage — sales in August go down, but year-over-year results stay stable — but the devil is in the details. With car sales just now beginning to perk up, will dealerships hold off hiring or making other key investments? Most of all, did we spend $3 billion dollars on car sales that would have happened anyway?

At the end of the day, perhaps what the Cash for Clunkers program proved is best put by one James L. Gattuso, a senior fellow at the Heritage Foundation:

“This proves one thing: If you hand out money on the street corner, people will take it.”

Related Links:
ABC News: Feds Investigate Cash for Clunker Car Dealerships
Edmunds: Auto Sales to Slide 18 Percent on 2009 Clunkers Benefit
CARS.GOV: Official Program Site

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