Wednesday, September 15, 2010

CASH FOR CLUNKERS COVER UP?

“Cash for Clunkers” aka CARS, the government stimulus program for the auto manufactures and dealers last August was generally regarded as one of the more effective stimulus programs of the Obama administration. It cost us taxpayers $3 Billion but it sold almost one million new cars. There are arguments on how many extra new cars it sold and how many of those that were sold would have been sold eventually anyway. But, overall, it is generally considered a far more effective stimulus than TARP and certainly a lot less expensive.

What puzzles me is why there is so little media coverage of the fact that most customers who bought new cars under this program did not receive a fair trade-in for their clunker. There was a class action lawsuit filed in New York against one of the largest dealer groups in the country on this point and the Oregon Attorney General has ruled that all car dealers must pay their clunker customers what they received from the salvage yards to which they sold the clunker. Both of these incidences received virtually no national or local media coverage.

In my judgment, the clear intent of the Cash for Clunkers program was that the buyer should receive a trade-in allowance commensurate with the value of her clunker, just like a normal sale with a trade-in would. Unfortunately, the government did not make this abundantly clear and therefore most car dealers took advantage of this “loophole”. Most car dealers allowed hundreds of dollars less than they actually sold the clunkers to salvage yards for. Some dealers gave their clunker customers absolutely nothing for their trades.

I read in the auto manufacturer/dealer trade publication, Automotive News, that the average trade-in allowance estimate for clunkers was $75. Since the government did allow the dealer to keep $50 for administrative costs, this meant that the average clunker customer netted $25. I sold 286 new Toytota in the clunker program and my average sale to the salvage yards was for $445. If this average applied nationally to the one million clunkers, this would mean that car buyers under the clunker program were underpaid on their trade-ins by about $400 million.

One has to ask, why the media is ignoring this at least ethical violation which has cost American car buyers hundreds of millions of dollars. I can think of only one reason and that is the fact that car dealers and manufacturers are among the largest advertisers. Asking the same question of why the NHTSA doesn’t take action I can think of only one reason too. That is that the National Automobile Dealers Association, NADA, is a very powerful lobbying group. They are so powerful that they were able to at least temporarily halt the cancellation of GM and Chrysler dealers by GM and Ford which was mandated under the government bailout program.

The amount that a clunker was sold to a salvage yard for is a matter of public information and should be available from NHTSA under the Freedom of Information Act. If you bought a car under this program, you might be interested to know how much you should have received as a trade-in vs. how much you actually received. I’m working on accessing this information and I will advise all of my readers when I’m successful.

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