A coalition of consumer groups is calling on the U.S. Department of Transportation (DOT) to ensure, as the agency winds down the Cash for Clunkers program, that dealers are not "double-dipping" and getting paid twice -- once by their customers and again by the government.
During the past several weeks, the rejection rate for Cash for Clunkers transactions has hovered around 80 percent. Many dealers jumped the gun and entered into a high volume of contracts in July, before the rules governing the program were issued and before any deals were approved. Since then, the program has been overwhelmed, causing delays in payments to dealers.
As a result, many dealers are on the hook for tens of thousands of dollars. Experiencing cash flow problems and under pressure from lenders, some dealers have resorted to pressuring their customers to make up the difference. The program is now scheduled to end Monday, Aug. 24.
Some dealer associations even provide standardized "contingency agreements" for their dealer members that shift all the risks for rejected deals from the dealers to car buyers. Whether they signed the agreements or not, car buyers across the country are complaining that they are being pressured to give the dealers $3,500 or $4,500 extra in cash or sign a new contract agreeing to pay more, typically under threat of losing their new car or having the dealer report it stolen.
Dealers, of course, see it differently. Many have not yet seen their first check from the government and, in a business that relies on fast, upfront payments, that's causing some sleepless nights in autoland. Nissan is the latest automaker to say it will front money to dealers who are waiting for their clunker payments from Uncle Sam. Toyota and Volkswagen are also offering financial aid to cash-strapped dealers, as is General Motors.
Some dealers -- including Auto Nation, the largest U.S. auto retailer -- said it stopped making clunker rebate sales Friday night to make sure it had time to submit all of the deals for approval before Monday night. Auto Nation said it is owed about $45 million in taxpayer-finaned rebates.
President Obama denies there have been "extraordinary delays" in the processing of dealers' cash-for-clunkers claims and said the government has to be scrupulous in reviewing them to avoid fraud, Automotive News reported.
"This is actually a high-class problem to have -- that we're selling too many cars too quickly, and there's some backlog in the application process," Obama said in a radio interview released by the White House.
Acknowledging the consumer groups' complaints, DOT posted information on its Web site to advise car buyers that they do not need to sign the contingency agreements. However, many car buyers are unaware of that information. Having surrendered their "clunker" and dependent on their new car for transportation, they are vulnerable to being pressured, even if they did not sign the agreement.
Car buyers have no way to know if the dealer is being paid by the government, making it easy for auto dealers to game the system by collecting the $3,500 or $4,500 from the car buyers and collecting that amount from the government.
To protect taxpayers and reduce the risk of fraud and abuse, the groups are calling upon the DOT to require auto dealers to certify in writing that they have not already collected the amount of the incentive from the car buyer or reconfigured the deal in a subsequent contract.
They also say DOT should send a notice to the car buyers informing them that the deal was approved and the dealer was paid either $3,500 or $4.500. DOT is also urged to provide a simple pre-addressed form with prepaid postage for the car buyers to mail to the National Highway Traffic Safety Administration if they have paid that amount to the dealer themselves, or if they entered into an amended contract to buy the same vehicle. "Unless the DOT takes these simple steps, it will have no way to know whether the dealers are gaming the system," said Rosemary Shahan, president of Consumers for Auto Reliability and Safety (CARS).
Joe Ridout, consumer services manager of Consumer Action, says, "By including these simple safeguards, the Department of Transportation can both protect consumers and verify that the taxpayers' investment in this program has not been misused."
DOT spokesman Bill Adams tells ConsumerAffairs.com that as the program begins to wind down, the department has three shifts working across the country to make sure dealers get their reimbursements. Adams adds says DOT "will continue to be diligent about the potential of fraudulent activity by all who are involved in the transactions."
He emphasizes, "Consumers are not required to sign contingency agreements to pay back the dealer should the cars credit be rejected." But he said nothing about the consumer groups' calls for notifying car buyers that that the deal was approved and the dealer was paid.
Last week, CARS and Consumer Action wrote to Secretary LaHood urging DOT to prohibit dealers from luring or pressuring car buyers into signing the contingency agreements and to survey car buyers to find out the full extent of the problem.
The "Cash for Clunkers" program ends next Monday night (Aug. 24) at 8 p.m.
Because of a large number of pending transactions, no one is sure just how many vehicles have been sold and, therefore, no one knows exactly how much money has been spent. Congress allocated $3 billion for the program and the auto dealers' trade group suspects that every cent -- and then some -- is already spoken for. Federal officials have expressed confidence there's enough money to cover all the deals that have been made.
The Transportation Department said that as of Thursday, dealers have turned in applications for $1.9 billion in rebates for voucher payments made to customers.
GM said its sales over the past two months have exceeded internal forecasts by more than 60,000 vehicles, largely because of the clunkers program. New vehicle sales overall are expected to exceed 1 million in August, the first time that's happened in at least a year, according to J.D. Power and Associates.
It's not just car dealers who are frustrated with the program. Would-be car buyers are also complaining of just about every type of snafu imaginable.
Many consumers have found dealers unwilling to hand over their new car until the dealer gets reimbursed by the feds.
"I signed a purchase agreement and loan agreement to purchase a new 2009 Chevy Impala under the cash for clunker program," said Mike of Howell, Mich. "The new vehicle is suppose to be handed over at time of deal. Dealer has held new car for 3 weeks now and refuses to hand it over until they get reimbursement from the government of $3,500."
Fred of Longmeadow, Mass., not only didn't get his new vehicle -- his old one nearly went into the crusher.
"We purchased a new 2009 Chevy Silverado at Balise Chevrolet on 8/13/09. We had agreed on a price of $11900 with a $4500 cash for clunkers rebate," he told ConsumerAffairs.com. "They looked up the trade in vehicle and told us it qualified for a $4500 rebate."
Fred said he took out a loan to cover the agreed-upon price. When he went to pick up the new truck, "They took my old truck and wrote clunker on it and towed it away. The man who was delivering the car then informed us our truck did not qualify for the clunker rebate," he said.
"We could not afford to pay anymore for the truck so we had to cancel the deal and wait for an hour and a half to get our truck back. They blamed the cash for clunkers government website for the problem. I than had to go back to my bank and try to cancel the loan for the truck.," he said.
Nancy of Manchester, N.J. said she spoke with the Internet sales department at Pinebelt Chevy and was told there were two trucks of the type she wanted sitting on the dealer's lot. So she had her trade-in towed in, only to be disappointed.
"When I got there the salesman was rude, told me the truck was sold and they only had trucks with 6' beds when we needed a 8'. ... This was a bait and switch situation," said Nancy, who had to have her trade-in towed to another dealer.