Will Cash for Clunkers Run out of Time or Money First

Will Cash for Clunkers Run out of Time or Money First by Steve Cypher on Friday, July 24th, 2009

The government estimates that there is enough funding for 250,000 vehicles in the CARS program but many dealers have already delivered anywhere from 10 to 40 vehicles under the program.

How will it end?

Will the “Cash for Clunkers” program run out of time before all of the money is spent, or will it run out of money long before the November 1st deadline?

Here at Auto Credit Express, more than a few of us are taking bets on how long the money will last in the federal CARS program that officially started today. This is because even though today marks the point in time in which the government unveiled the official “rules of play”, as it were, dealers were given the go-ahead to begin delivering vehicles under the program on July 1st.

The only caveat to dealers (and it was a big one) was that any vehicles delivered and trade-ins accepted under the program between July 1st and July 24th that did not meet the final qualifications would mean rejection of the voucher application.

Even with this hanging over their heads, many dealers adopted a “full speed ahead” (or in this economy maybe an “any port in a storm”) mentality and began delivering vehicles under the program on the 1st of July.

How many so far?

At this point in time, no one really knows how many vehicles have already been delivered. Dealers were allowed to register beginning at 12:01am this morning and at least one dealer I’ve spoken with has tried more than 30 times to register his dealership online (the only way it can be accomplished) to no avail – after reaching the second page of the form, an error message pops up (I tried it, myself) informing him that the server is taking too long to respond.

If a dealer is able to complete the registration, the system will not begin accepting actual transaction information until July 27th. Even when this happens, there is no way a dealer will know if there is any money left in the program to fund the “voucher” related to the deal – even if all the paperwork is correct. But why worry about this so soon?

Doing the math

According to the CARS program, the NHTSA estimates that the $1 billion in the program will allow dealers to sell, on average, 12 vehicles per as part of the voucher program (using an estimate of 250,000 vehicles sold under the program divided by 19,700 dealers as of early 2009). Even discounting the fact that many of these dealers sell high-end vehicles (BMW, Volvo, Acura, Mercedes-Benz) that have few qualifying models or others (such as Aston Martin, Jaguar and Lamborghini) that have none; that still leaves at least 17,000 dealers that certainly will qualify.

Even factoring in the smaller dealers that may not sell their “quota”, the larger dealerships will certainly more than make up that difference, and it may not take that long.

I can say, for a fact, that there are dealers out there that have already delivered between 10 and 40 vehicles under the voucher program. There are also dealers that have taken deposits on anywhere from 50 to 100 deals and are only awaiting approval on their registrations to complete the transactions.

“in wikked haste is no profit” – Geoffrey Chaucer

NHTSA says that it “is planning to hire 30 employees and over 200 contractor employees” to carry out the program “over a period of 6 months.” My guess is that CARS will last a considerably shorter time than that before it runs out of funds. I hope this is not the case, but if it comes to pass, things could get ugly.

The other big “if” for dealers is that, at this point, there is no way of knowing exactly when the program will run short of funds – especially if things start moving quickly and there’s a sudden sales surge. In fact, the dealer won’t know if a voucher is funded until after the sale has been completed – which means many customers could find themselves signing documents stating they must repay the voucher amount if, for some reason beyond the dealer’s control, the money to cover it is no longer there – certainly a lose-lose situation for both the dealer and the customer.

Tags: cars, cars program, cash for clunkers, nhtsa

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