Obama Administration Assures Dealers They'll be Reimbursed for Clunker Rebates

WASHINGTON August 19, 2009; Ken Thomas and Dan Strumpf writing for the AP reported that transportation Secretary Ray LaHood assured car dealers Wednesday that they will be reimbursed for sales made under the Cash for Clunkers program and said the department would soon offer plans to wind down the popular car incentives.

LaHood said the department will announce by Friday how it intends to discontinue the program that offers car buyers rebates of $3,500 to $4,500 for trading in older vehicles and buying new, more fuel-efficient models. Department officials met with car dealer trade groups on Wednesday to discuss complaints over a backlog of rebate payments to dealers and how the program will eventually end.

"I know dealers are frustrated. They're going to get their money," LaHood told reporters.

Through early Wednesday, auto dealers have made deals worth $1.81 billion and are on pace to exhaust the program's $3 billion in funds in early September. The incentives have generated more than 435,000 vehicle sales but with the funds dissipating, LaHood said the Obama administration would soon announce how much longer the car incentive program will last.

"We want to make sure that dealers know when we're getting close to (running out of) the money that we have been allocated," LaHood said.

LaHood was responding to complaints from dealers, who must cover the customer rebates out of pocket and wait for reimbursement from the federal government. Some dealers have said their reimbursement requests have not yet been approved, leading to a cash crunch, a critical issue because they typically borrow money to put new cars on their lots and must repay those loans within just a few days of a sale.

A group representing New York metro dealerships said Wednesday that hundreds of its members have withdrawn from Cash for Clunkers, citing delays in getting reimbursed. Other dealership groups across the country said their members have stopped extending new clunkers deals out of fear they will be repaid late or not at all.

The National Automobile Dealers Association said its trade group met with Transportation Department officials to discuss dealer concerns about reimbursement delays under the program and ways of fixing the problems. NADA spokesman Charles Cyrill said the association "stressed the importance of addressing -- as soon as possible -- how the program will end, including the possible suspension of the program."

Many dealers have expressed concerns about the program. The Greater New York Automobile Dealers Association, which represents dealerships in the New York metro area, said about half its 425 members have left the program because they cannot afford to offer more rebates.

"(The government) needs to move the system forward and they need to start paying these dealers," said Mark Schienberg, the group's president. "This is a cash-dependent business." Schienberg said the group's dealers have been repaid for only about 2 percent of the clunkers deals they've made so far.

Melanie Bible, spokeswoman for the Pennsylvania Automotive Association, also said about half of the state's 950 dealerships have stopped cutting new Cash for Clunkers deals. She said the figure is anecdotal, since no formal survey of dealers has been conducted.

The financial arms of several automakers have begun offering help to cash-strapped dealerships, in some cases by floating loans to help cover clunker-related shortfalls. Toyota Financial Services is offering loans to dealers for up to 60 days to cover the lag between a dealership's payment and its reimbursement. The financial-services arms of Honda Motor Co., Nissan Motor Co., Ford Motor Co. and other automakers are offering similar programs.

The government's online reimbursement system was flooded with reimbursement requests shortly after the program began in late July, overwhelming the computer system and staff set up to process the deals. That led to big delays for dealers trying to file the paperwork they needed to get paid back for the rebates.

LaHood said some of the submitted paperwork has been incomplete or inaccurate, leading to delays. He acknowledged the Transportation Department did not have enough people to process the paperwork but said the DOT was ramping up staff.

DOT said earlier this week it was tripling its work force to handle the rebates and expected to have 1,100 workers dealing with the paperwork by the end of the week.

Michelle Primm, managing partner of a four-franchise dealership in Cuyahoga Falls, Ohio, said her store has stopped making deliveries on clunkers purchases until the sales are approved by the federal government.

Primm said her dealership has made 31 clunkers deals since the program was launched last month, but has only been paid for 3. She said she doesn't want to extend any more rebates unless she knows she is getting paid.

"I've got payroll and I've got taxes to pay and all those things," she said. "We're small."