Why "Cash For Clunkers" Must Stop -- Now!

Dealers get what they ask for, but are running out of money

By Scott Budman
|  Tuesday, Aug 4, 2009  |  Updated 9:14 AM EDT
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"Cash for Clunkers" Emptying Dealer's Wallets

AP

The "Cash For Clunkers" program is boosting sales, but some dealers say it should be dumped.

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"Cash for Clunkers" Emptying Dealer's Wallets

For the first time in years dealers are finally selling cars but they say they are still losing money. How? They say the government has not paid them back yet.
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Picture this:  Virtually every Ford, GM, Chrysler, and Toyota dealer in the country, watching cars fly off the lot for the first time in years.  Then picture this:  Those same dealers, an hour later, calling the US government, and leaning into the phone, Jerry Maguire-style, to scream "Show me the money!"

It's a strange time in the car industry. All of the sudden, they're getting what they've been asking for: customers. But the reason those customers are there, the "Cash For Clunkers" stimulus plan, is also the reason some dealers we spoke to are crying foul:  Customers drive off the lot with a $4,500 discount when they turn in a gas guzzler to be junked. But dealers don't get paid right away. That means they're fronting Uncle Sam $4,500 per sale, and the government is not paying them back yet.

This is great news for consumers. If you dump your old car, you'll get better gas mileage, do your part to help the environment, and become the envy of your neighbors for that new-car smell.  But for dealers, the clunkers are piling up, and the cash is getting low.

At Stevens Creek Toyota in San Jose, we found nearly 200 clunkers parked. Those Fords, Jeeps, even Land Rovers and Mercedes Benz take up a lot of space -- and they're all valued at less than $4,500, so the dealer will have to destroy them. They were left behind by cash-for-clunkers customers now rolling in new wheels. 

The problem, according to Steve Cornelius, the general manager of the dealership, is that his outfit is immediately out $4,500 per car, and they're waiting for the Government to pay them.  It's a Catch-22:  Fabulous sales for the first time in years, but nearly a million dollars in upfront discounts absorbed by the dealer until Uncle Sam starts writing checks.

Cornelius doesn't want you to cry for him.  He admits the stimulus plan is lighting a much-needed fire under potential buyers.  But it's hard to keep the lights on when you're a million bucks in the hole, and facing more discount-minded customers.  "We're literally selling ourselves out of business," he says.  Then he thinks about it. 

"This is a fantastic program," he admits.  "It's just not paying off yet."

If we don't start running the cash for clunkers program more thoughtfully, we may need to bail out dealers from our bailout.

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