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Sunday, August 16, 2009

Cash For Clunkers Rears Its Ugly Head

(H/T to the Weekly Standard) Here's a story that was all to predictable.

A growing number of auto dealers say the process of getting paid under the government's "cash for clunkers" plan increasingly resembles some of the wrecks accumulating on their lots as part of the program.

The slow payments coming from the federal government are reinforcing the paradoxical nature of the program for dealers: It has generated the most showroom traffic they have had in months while at the same time heaping unease, frustration and worry onto the industry's worst-ever downturn.

As of the close of business Friday, there was talk in the industry that some dealers are considering pulling out of the clunkers program altogether.

In fact, that's exactly what I predicted a couple weeks ago.

Are we really to believe that bogging dealers down in hundreds of pages of paperwork and hours on the phone and the net is stimulative or productive? Keep in mind that while dealers may have made the sale unless they get that rebate from the government that sale will lose them money. So, we are still to see the corrosive effects as dealers begin in earnest to try and recover that money. Once dealers are forced to spend thousands of man hours just to get their money back, then we'll see just how corrosive the program is.

I am not any oracle. That's just how government works. This law requires dealers to fill out over 100 pages in paperwork. They have to deal with a government bureaucracy. No one should be surprised that they are NOT being paid on time. The money was supposed to get t the dealers in 10 days and it's now going on three weeks and many still haven't seen any money. Dealers have fronted $100K to over $1 million and that has created all sorts of consequences.

What is the effect? Now, dealers are stuck in a cash crunch. They are running cash flow losses because they sold cars with up to $4500 worth of credit that they expected. Now, they don't have the cars or the money. They ordered new cars to meet the demand. They're struggling to make payroll. They certainly can't move forward with any new expansion or growth. In the end, for most dealers, all this has done is created an extra disruption at a time when their business was disprupted enough. Government in action.

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