Auto Dealers: Cash for Clunkers a Needed Boost

The "cash for clunkers" program that lets consumers trade in an old vehicle for a rebate for a new, more fuel-efficient car, is ending on Monday. That's after it ran through its first $1 billion in the first four days of implementation, leading Congress to infuse it with another $2 billion infusion earlier this month. But even as the dust settles, some criticisms continue—including from dealers who say they're not being reimbursed by the government fast enough. Senate Majority Leader Harry Reid even sent a letter to Transportation Secretary Ray LaHood Thursday, asking that the government step up the pace of the payments.

John McEleney is the chair of the Virginia-based National Automobile Dealers Association, which represents more than 90 percent of new-car dealers nationwide and lobbied hard for the program. He recently spoke to U.S. News about how dealers have been reacting to the program and what the problem was with reimbursements. Excerpts:

When NADA started lobbying for cash for clunkers, was there much resistance in Congress?

This one was pretty popular going in. Even with some of the conservative Democrats and Republicans, there was no real strong opposition to it, with a few exceptions. Nothing's easy these days in Washington. But this one seemed to make sense. On top of all the money that was put in the auto industry, this was a lot of money, but it was also small by comparison, and it had a direct impact.

What are some of the problems with the program?

The program initially, in the first week, was very cumbersome. It was hard to get through the website. The program was put together fairly quickly, and it's not something that the federal government's accustomed to, nor dealers, so it took a little while to get through the bureaucracy. Then there was a lot of concern if dealers were going to get reimbursed for the money they had advanced to customers. But we seem to have gotten past that.

What were the complications with the reimbursement process?

It was just a very labor-intensive, document-intensive application process. I think it went a little over the top in terms of trying to avoid abuse.

Has that improved?

It seems to be much better. The requirements have been relaxed a little bit. More importantly, they have put on a lot more people. They've got about twice the number of people working the phones and computers than they did initially.

How are dealers' inventories?

Inventories are quite low. We wish we had more to sell. But it's probably enough for the duration of this program, and vehicles are arriving every day.

You're a car dealer yourself. What has your personal experience been with the program?

Our response has been, I think, much like the national response. It's been very positive. We've had more souls, more traffic, more phone calls, more Internet leads, more interest, than we've seen in a year. People recognize it as a real value.

Are you worried that the program has artificially boosted short-term buying, only to set up a big sales drop later this year?

You always have that concern. Dealers have expressed that to me. After 9/11, GM and the other companies came out with zero-percent financing for the first time. That created a huge volume of sales, and there was a hangover from that. I think this is a little different. There is a tremendous amount of pent-up demand. We've been running at about 60, 65 percent of the sales rate compared to the previous year. The scrappage rate—the rate at which vehicles were being taken off the road—actually exceeded new-vehicle sales for the first time in history. That tells us that a lot of people are still in the market but, because of the overall economy, did not have confidence to proceed with a major purchase. So rather than pulling from the future, we might be driving back some sales that might have occurred in the fourth quarter of '08, in the first two quarters of '09.

Some critics have said that the program takes sales away from used car dealers. Are they annoyed?

There is some of that. A lot of these vehicles that are being crushed would have ended up in their inventories and would have been sold to some of their customers. There is some resistance there, certainly. But on a positive side, the used-car values have stayed quite high despite this, despite the fact that there's been an artificial stimulus for new vehicle sales. Ordinarily you'd expect used car values to drop, and that has not happened. So that's a good thing.

• Read more about cash for clunkers.
• Read GM 'Cash for Clunkers' a Huge Success.