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July 31st, 2009

‘Clunkers’ program out of money?

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That’s what the rumors say:

Congressional officials say the government plans to suspend the popular “cash for clunkers” program amid concerns it could quickly use up the $1 billion in rebates for new car purchases.

The Car Allowance Rebate Scheme (CARS) program is only in its first week, but nearly 23,000 vehicles have been approved — and there’s such a backlog that the government fears the money may already have run out:

As of late Wednesday near 23,000 vehicles had been registered as sold under the system, meaning that $96 million of the money had been used. However, the operative word there is “registered”. In order to qualify under Cash for Clunkers the dealers have to complete what is said to be a complex registration process. Some 100 pages of rules governing it and there are reports that it can take as much as 90 minutes to complete a single registration on the correct computer system run by the NHTSA. There are also reports that the system is so overloaded that dealers are being bumped off half way through and they then need to start all over again.

Given all of the hype drummed up over the CARS program, the most likely outcome is that Congress will choose to appropriate more cash to it. There’s also a larger lesson here:

A government program, passed in a hurry with no real planning or forethought to it, hampered by an entirely inadequate computer system, blasts through its entire four month budget in only four days and thus causes chaos.This does not bode well for the various plans for national health care now, does it?

Update: Well, that didn’t take long:

The U.S. House approved an emergency $2-billion infusion for the cash-for-clunkers program this afternoon, with a plethora of lawmakers from around the country calling it a runaway success that should not be ended.

But the head of the National Automobile Dealers Association warned dealers today that until the money was guaranteed, they could be on the hook for any cash-for-clunkers trades despite assurances from the Obama administration that deals through today will be honored.

With the House set to adjourn today for a monthlong recess, House Democratic leaders worked through the night to craft a bill carving $2 billion from an energy loan program that was part of the $787 billion economic stimulus plan passed earlier this year.

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2 Responses to “‘Clunkers’ program out of money?”

  1. Charles Senkler Says: August 2nd, 2009 at 12:00 pm

    What’s happening with the recycling efforts on the Gov’t purchased junkers. Seems there are jobs in a recycling effort with the raw materials warehoused for use by the auto industry at reduced cost or favorable terms, since the Gov’t owns them.
    If they simply pass the vehicles on to established auto recyclers, the jobs won’t be developed, the recycled materials will enter the international market place and US auto makers will gain no advantage. Worst case we pay for storage.
    Build a WPA style recycling effort with less money given out to non-operating junkers, this feeds the industry and builds an inventory of raw materials.

  2. Paul Havemann Says: August 2nd, 2009 at 1:48 pm

    The New York Times wonders the same thing. So far it isn’t encouraging:

    One thing still not clear is how many older cars have actually been sold and scrapped with the original $1 billion, and how many more the new $2 billion will be able to cover. Mr. Kurkin tells us that the government Web site where dealers are supposed to register their deals has been crashing, and the dealers haven’t been able to plug in their information. [...]

    “Oh my God, what a mess today,” Sally Ann Maggio, who co-owns Hackensack Auto Wreckers, also in New Jersey, said on Friday. We visited her car-crushing business on Thursday. She didn’t think much of the program to begin with.

    Ms. Maggio said she generally makes her profit by reselling the engines, the most valuable parts of the cars she takes, but that’s not posible with the cars coming to her because of the cash for clunkers program, because they have been rendered unusable. That cuts down the salvage value of the cars — and the incentive for salvage yards and wreckers to take them — to almost nothing, considering the time and energy they must spend in going to the dealer, towing back the dead cars, removing the engines, crushing the bodies and shipping them to a metal scrap shredder and recycler.

    And, of course, the process reduces the supply of used engines for people who can’t afford to buy a new car and come to the salvage yard looking to fix up old ones.

    Yes, it’s as bad as you feared.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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