Who’s On The Hook For Failed clunker Deals?
Thursday, August 13th, 2009From Net Worth – Kathleen Pender -Thursday, August 13, 2009
A battle is brewing among consumer groups, car dealers and the government over the use of contingency agreements in the Cash for Clunkers program.
At issue is who is left holding the bag if a transaction goes awry.
Under the Car Allowance Rebate System, a consumer turns in a qualified clunker and gets $3,500 or $4,500 off the price of a new car. The dealer must make sure the clunker and the new car meet program requirements and get the proper documentation – including proof of insurance and registration – from the owner.
After the buyer drives off, the dealer must electronically submit the paperwork and wait to be reimbursed. Dealers say that transactions are being rejected at a high rate – often for data errors, which can be corrected – and that reimbursements are coming slowly or not at all.
Some dealers are requiring or asking buyers to sign an agreement stating that if the dealer is not reimbursed, they will repay the dealer the $3,500 or $4,500 or return the car and get all or most of their money back. They can’t get their old car back because it is destroyed.
If buyers don’t comply, some dealers say they will repossess the new car, which could hurt the customer’s credit rating, or report it as stolen, says Rosemary Shahan, president of Consumers for Auto Reliability and Safety.
Dealers “told Congress and the press they needed Cash for Clunkers to be renewed because dealers were on the hook, they had taken risk, entered into these contracts. They didn’t tell Congress ‘We are shifting this risk onto consumers,’ ” she said.
The National Highway Traffic Safety Administration, which is running the CARS program, has told dealers they cannot force people to sign these agreements. It posted an advisory on www.cars.gov this week saying, “Consumers are not required to sign contingency agreements to pay back the dealers should the CARS credit be rejected.”
In response to reports that some dealers are refusing to turn over the keys to the new car until they are reimbursed, NHTSA added this notice to the Web site: “If the dealer has the new car in stock, the dealer must allow you to take possession of the new car before the dealer may submit the credit application to the government.”
The National Automobile Dealers Association questioned NHTSA’s legal authority to issue that kind of guidance. Charles Cyrill, a spokesman for the association, said it will “report any clarifications to its members as they are received.”
Some state auto dealers associations are recommending that their members get buyers to sign the contingency agreements. A sample agreement on the Minnesota Auto Dealers Association Web site says, “The dealership believes in good faith that your trade-in vehicle qualifies for the CARS incentive and that funds will be available. However, the risk of the federal government not paying the incentive is yours – not the dealerships.”
The California Motor Car Dealers Association is not advising its members to use such agreements, said Peter Welch, the group’s president. But “dealers are very, very frustrated. Some have seven-figure receivables outstanding. It’s starting to impact their cash flow. Many dealers I know have already decided to cease the program until they get paid.”
Dealers are also afraid they could lose if they make a transaction but are not reimbursed before the $3 billion allocated by Congress runs out. No one is sure how much money remains. A “fuel gauge” showing how much is left has been removed from the program’s Web site.
NHTSA spokeswoman Patricia Oladeinde said that if money runs out before a dealer is reimbursed, the dealer will be on the hook. “This is a voluntary program,” she said. “It does to some extent pose some risk.”
She said dealers have “a real-time ticker” that tells them how much money is left, but refused to tell me. “The public doesn’t need to know how much money is left,” she said.
Welch checked with two California dealers who said they have no access to a “real-time ticker.”
NHTSA has been sending out periodic updates through e-mail alerts.
The Wall Street Journal reported that as of early Tuesday, dealers had requested reimbursement for 292,447 vouchers totaling about $1.23 billion.
This article appeared on pageC – 1of the San Francisco Chronicle
