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Why Cash for Clunkers Failed America
An Open Letter to Americans:
The Cash for Clunkers program has provided an important lesson that Congress must take to heart at this time when other sweeping measures such as national healthcare reform are being considered.
The concept of creating a stimulus package for the automotive industry had its share of detractors, but the measure was passed by Congress and was signed into law on June 24, 2009.
The law empowered the National Highway Transportation Safety Administration (NHTSA) to create the Car Allowance Rebate System (CARS) to administer the stimulus money. The NHTSA website provides a copy of the law which includes this statement:
“The (NHTSA) Secretary shall promulgate final regulations to implement the Program not later than 30 days after the date of the enactment of this Act.”
The law also requires the NHTSA Secretary to set up an Internet website not later than 30 days to support the needs of consumers and dealers.
I am deeply concerned about the wisdom and choice of Congress to mandate a 30 day window to implement a completely new national program that required the voluntary participation of over 20,000 car dealers in all US states and territories.
Americans need to understand the impact of legislators rushing to meet a perceived need without taking the time to consider implementation timelines.
On July 24, 2009, The Final Rule document was released by the NHTSA and delivered exactly 30 days after the enactment of the bill. The NHTSA advised dealers that they could register for the program three days later on Monday July 27, 2009.
Once the dealers’ registration information was entered and confirmed, they could start entering sales for reimbursement. Monday was also the day that the wheels fell off the CARS “cart”.
The NHTSA website had no time to be stress tested. It could not handle the thousands of dealers registering simultaneously. This resulted in weeks of dealer registration delays, further complicated by letters improperly mailed from the NHTSA to dealers with wrong dealer registration codes.
The NHTSA website also could not handle the volume of sales transactions being uploaded for reimbursement. Car dealers were forced to spend hours to enter a single sales transaction. Dealers had to require their staff to work through the night to enter sales when website traffic was lower. The failures of the NHTSA website decreased dealer confidence in the program and raised concerns about the reimbursement process and payment timelines.
NHTSA reported that when dealers were able to upload sales documents, 80% were rejected as incomplete. The high rejection rate confirms that the NHTSA could not properly train dealers in the time allotted by Congress.
The NHTSA initially chose to hire 100 employees to review sales applications; a few days later they tripled that number. In the first official week of the CARS program over 200,000 sales were made which would give every employee about 7,000 cases to inspect, review and approve.
Dealers under the law are entitled to be paid in 10 days after their sales transactions are approved. This workload from the initial $1 billion in funding alone would take over a month for staffers to review and approve dealer submission. Imagine the backlog at the NHTSA when you consider that over 600,000 qualifying CARS sales are likely to be completed by this time.
Dealers now have hundreds of thousands of dollars tied up in CARS reimbursements and only a small percentage has been repaid. The implementation compelled some dealers to create sales contingency contracts to protect themselves from unintended financial losses.
This has infuriated consumers; a practice recently denounced by the NHTSA. Dealers must now brace for thousands of lawsuits claiming that they haved violated program rules and NHTSA guidelines.
This well intended government stimulus program was rushed to market. Consumer confidence that our government can enact fast tracked national reforms has been damaged.
NHTSA Secretary Raymond LaHood should have spoken up and demanded that the 30-day startup clause be removed. The fact that the NHTSA was unable to remove this language is the lesson that we must take away from the Cash for Clunkers implementation chaos.
Was one of our top government agencies, entrusted with billions of dollars, ignorant of the real life requirements of a program that must work cooperatively with the private sector, or was its voice silenced by political expediencies? Did the automotive lobby have that much influence on Congress to push such an unrealistic start-up schedule?
The potential answers are frightening.
I hope that the clear lessons learned from the Cash for Clunkers program are at the forefront of the minds of the legislators who are eager for fast track changes in our healthcare system.
Pasch Consulting Group
Creators of www.cashforclunkersfacts.com
brian@paschconsulting.com
http://twitter.com/cashclunkers
10 responses on “Why Cash for Clunkers Failed America”
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The law says dealers are entitled to be paid within 10 days of the submission being approved . . . clearly NHTSA is not meeting this deadline.
What is the penalty? Are the dealers entitled to additional compensation for the delay ?
Nicely written Brian.
The NHTSA should have comeup with an appointment system, along with and under CARS program, for consumers to go to a dealer. This would have slowed down spending $3B and also provides an opportunity to make improvements to the program.
An accurate and brilliant summary of what went wrong. Nicely written, Brian.
Tony D. from NY
“I Survived C4C”
this cash for clunker is bullshit. why in the fuck would I continue to pay auto insurance for a vehicle that i no longer drive.10 days agothis cash for clunker is bullshit. why in the fuck would I continue to pay auto insurance for a vehicle that i no longer drive.
Aug 18, 2009
Higher sales, in part from the government’s Cash for Clunkers program, are spurring General Motors Co. to boost production at several of its factories.
The automaker said Tuesday it will add 60,000 vehicles to its production in the third and mainly the fourth quarter. It will also bring back about 1,350 laid-off workers in the U.S. and Canada
How amazing it is to hear that dealerships need “to stop their whining”…news reports so far put the pay-out to dealers from the gov’t at less than 2% of the total submitted. Say that’s really 5% of the $2billion so far applied for, which means that dealers are self-financing about $1.95billion. The manufacturers got paid already, though they could have fronted this money.
No dealer should keep the car or hassle the buyer to front this money. However, isn’t it funny that the manufacturers collected $ no matter what? Politics. All while the dealerships self-finance billions and the buyers get upset, and in some cases, wronged.
I think this is a lesson in free-market economics. Trillions of dollars have been poured into economic recovery programs with mixed results. When $0.001 trillion (now up to $0.003 trillion) was handed over to individual consumer choice, look at the results. Also, consider the problems arising from dealers (private business entities) manipulating the government rules to their own benefit — and consumers’ detriment.
To avoid partisanship, I will use the phrasing “fiscally conservative” and “socially liberal.” Individual politicians, candidates, and citizens can place themselve anywhere along the scale between those extremes they choose.
Conservatives would generally espouse allowing consumers to have maximum choice and resulting responsibilities — this goes for both individual persons and corporate businesses (who are also consumers). Liberals tend to favor government control and oversight of both business processes and individual actions. Liberals say that government direction is the best way to guide both the economy, employment, resource usage, etc. Conservatives say the government regulation is necessary but should be kept to the barest amount required.
Consider the previous paragraphs in light of the CARS Cash for Clunkers program. Now, extend those same lines of thought to currently active government debate in other areas, such as economic recovery, health care, levels of taxation, social policies in marriage, family planning, and so on.
- Bill
Stop, Look and Listen… Was good advise when I was a kid and sounds practical here. Stop (pause) Cash For Clunkers, Look at the issues, Listen to the end users (dealers / CARS staff)and make corrections.
Learn from the initial mistakes and move on to spending the next (2) billion of my kids future earnings.
Good Selling,
DTG
I agree with all that the CEO, Brian Pasch, of this site says in the above letter. I would add that now is the time for all dealers who know that many of their customers will not benefit from this disastrous program, to contact them by mail, announcing their withdrawal from the program but that they, the dealers, would still like to work with them to provide the best deal they can. If the dealers do this, they will have customers for life. If they don’t, the customers will tell 10 people how they were screwed. You can’t fix that type of advertising, but the former propect gives the dealer a better chance of recovery.
I just think how I would feel if my dealer would call me or write me and tell me of this proposal. It certainly would stand a better chance of me buying from him and not suing him.
Certain dealers used their mental resources, NOT to facilitate the program smoothly but rather to place roadblocks and confuse prospective customers (cars held hostage, credit card authorizations as rebate guarantees to dealer, not disclosing scrap values, and raising prices).
Add to these the stacking of many deals not submitted in a timely manner so the sales personnel could keep “selling” without completely “closing” the sale, has added to the perception that the dealers were up to something shady.
There always was someone else to blame and the “buck” got passed quite a bit. As I see it, this was a voluntary program for dealers to choose to participate or not. The dealers need to stop their whining.
The customer also had responsibilities to be informed and supply correct and accurate documentation. Persistence and the Davey Crockett philosophy worked…”be sure you’re right, then go ahead.” The squeaky wheel succeeded. Those, who expected to be enabled lost out and are now embittered.