‘Clunkers’ Auto Rebate Plan So Popular That It’s Already Broke

[jimmy olsen]

That was quick. 

http://www.nytimes.com/2009/07/31/business/31clunkers.html?hp

By MATTHEW L. WALD
Published: July 30, 2009

WASHINGTON — After an unanticipated level of response from car shoppers seeking new auto discounts under the "cash for clunkers" program, the government was reported Thursday evening to have exhausted the funds available, leaving unclear whether further applications would be accepted.

The National Automobile Dealers Association surveyed its members in recent days and told the Transportation Department Thursday that it had a very large backlog of applications, according to Bailey Wood, a spokesman for the association.

Late in the day the group said the Transportation Department had responded by telling it to stop taking applications at midnight. Both the government and the dealers were concerned that buyers would drive off the lot assuming they had a big rebate that would not, in fact, be available.

The Transportation Department had no official comment on Thursday, but in the evening, a White House official, who refused to be identified, said that the program had not, in fact, been suspended. The dealers' group said, though, that the last instructions it had were to cut off applications at midnight Thursday.

The Transportation Secretary was making calls to the House and Senate Thursday to try to line up more money. The House leaves town for its August recess on Friday.

About a quarter-million vehicles were sold under the program, which offered payments of $3,500 to $4,500 for people who traded in old cars for new ones that had higher fuel economy. The average payment worked out to about $4,000, and the total payout, about $1 billion, the amount allocated by Congress under the program, formally called the Car Allowance Rebate System, or CARS.

A statement issued Thursday evening by the White House said: "We are working tonight to assess the situation facing what is obviously an incredibly popular program. Auto dealers and consumers should have confidence that all valid CARS transactions that have taken place to date will be honored."

Mr. Wood, of the dealers' group, said, "We believe that the Department of Transportation is doing the responsible thing to suspend the program." Mr. Wood said that his group would ask Congress and the White House to add money to the plan.

The sudden depletion of the fund was a surprise.

On Thursday evening, the government Web site describing the program, http://www.cars.gov/still showed a chart shaped like a fuel gauge that indicated $779 million was available for trade-ins of cars and light trucks. Earlier Thursday, the Transportation Department issued a news release that said that applications for fewer than 23,000 vehicles had been submitted as of Wednesday, with a rebate value of just under $100 million.

The Transportation Department had begun accepting applications on Monday, when rules putting the program in place took effect. But car dealers had been accumulating the applications since July 1, when Congress put the law into effect.

Congress evidently did not anticipate that the money would fly out the door so fast; it said that applications would be accepted until Nov. 1 or the money ran out.

The program had two goals: aiding the ailing car industry and improving fuel economy in the fleet on the road.

Cars submitted under the program were to be junked. They had to be less than 25 years old, and have a fuel economy, as rated by the window sticker, of 18 miles a gallon or less.

The size of the rebate depended on the fuel economy of the replacement vehicle. Consumers were also supposed to receive the scrap value of their trade-in.

From the dealer's point of view, the program was a resounding success.

"Two hundred and fifty thousand vehicles in four weeks?" Mr. Wood said. "One word comes out of my mouth: Wow."

As word spread unofficially on Thursday night, car dealers were suddenly plunged into confusion.

A Ford dealership in Paramus, N.J., did not know of the apparent suspension until a reporter called seeking comment.

Other dealers said they had no idea what the suspension meant or whether the deals that they had already signed would be honored by the government. Some said they were notified by e-mail message by fellow dealers.

The dealers' association, however, had been warning that the money would go quickly.

Under the program, buyers who picked a car with a mileage improvement of more than four miles per gallon but less than 10 were eligible for $3,500; those whose new vehicle was rated 10 miles per gallon or more better than the old one were eligible for $4,500.

Until the cash-for-clunkers program began, the auto industry had been on track for annual sales of about 10 million units, down from the peak of about 16 million units a year.

Katharine Q. Seelye contributed reporting from New York.

[Monoriu]

This is totally inept bureaucratic planning.  If you design a scheme like that with a cap in the amount of money available, you have to have a plan to deal with the possibility that the number of applications may exceed the amount of funds available.  They seem to be taken by surprise, and this should not have happened.  Heads would roll in HK if this happens. 

[MadImmortalMan]

This is totally inept bureaucratic planning.  If you design a scheme like that with a cap in the amount of money available, you have to have a plan to deal with the possibility that the number of applications may exceed the amount of funds available.  They seem to be taken by surprise, and this should not have happened.  Heads would roll in HK if this happens.

LOL---This is despite the fact that nobody's actually getting any rebates.   

http://www.startribune.com/business/51943937.html?page=1&c=y

Scott Lambert, vice president of the Minnesota Auto Dealers Association, said he was "astounded" to learn at a meeting Tuesday representing about 150 Minnesota dealers that not one has had a deal approved.

"We had dealers representing 1,500 to 2,000 transactions," he said. "We asked how many had a deal approved yet, and not one hand went up."

[Monoriu]

Well, it is a trade off really.  In the HK government, every new initiative goes through very rigorous procedures before they are announced.  Every plan has to be approved by multiple levels of bureaucrats and then by multiple committees comprising multiple departments.  Only schemes that survive the scrutiny survive.  The bosses are supposed to attack the idea from every angle and prepare for every eventuality.  Only then do we seek funding from the legislature (they can't propose anything, only vote yes/no on government proposals). 

The other way is to conceive something and then rush it out.  Very fast response to economic crisis.  But many bad things happen.

[Zanza]

Germany had a car scrappage scheme too and when they ran out of money they just threw more money at it. That's how a Western democracy works, Mono. 

[The Brain]

America isn't a democracy. President Bartlett said so himself.

[Alatriste]

America isn't a democracy. President Bartlett said so himself.

Actually I think a distinguished Languishite (redundant, I know) told us that America is a Republic, not a Democracy...

Oh, and I wouldn't define having spent the allocated budget 'being broke'. In fact, I would go sa far as to say spending that money was the target of the plan.

[Admiral Yi]

This is totally inept bureaucratic planning.  If you design a scheme like that with a cap in the amount of money available, you have to have a plan to deal with the possibility that the number of applications may exceed the amount of funds available.  They seem to be taken by surprise, and this should not have happened.  Heads would roll in HK if this happens.

You're in charge of clunkers.  How do you design a program so that there are no applications in the works when the program runs out of money?

[Monoriu]

This is totally inept bureaucratic planning.  If you design a scheme like that with a cap in the amount of money available, you have to have a plan to deal with the possibility that the number of applications may exceed the amount of funds available.  They seem to be taken by surprise, and this should not have happened.  Heads would roll in HK if this happens.

You're in charge of clunkers.  How do you design a program so that there are no applications in the works when the program runs out of money?

1. Set up a quota system.  First 100 who applies will get the money.  The rest get zilch.  Alternatively, the rest gets an IOU that may or may not be honoured subject to availability of additional funds from Congress.
2. Draw lots.  Everybody who applies before 1 August gets a chance to win the lottery.
3. Points system.  You get points based on objective criteria, income, age, location, anything that does not involve human judgement.  The people who gets the most points get the money. 
4. Delegate.  This is the amount of funds that we allocate to the states, and each figure out a way to do it.  I don't care how you do it, but I won't give you a cent more if you run out of money.

1 and 2 are preferred over 3 and 4 for corruption prevention reasons.

[The Brain]

America isn't a democracy. President Bartlett said so himself.

Actually I think a distinguished Languishite (redundant, I know) told us that America is a Republic, not a Democracy...

Exactly, just like Bartlett. Not a democracy.

[Admiral Yi]

1. Set up a quota system.  First 100 who applies will get the money.  The rest get zilch.  Alternatively, the rest gets an IOU that may or may not be honoured subject to availability of additional funds from Congress.
2. Draw lots.  Everybody who applies before 1 August gets a chance to win the lottery.
3. Points system.  You get points based on objective criteria, income, age, location, anything that does not involve human judgement.  The people who gets the most points get the money. 
4. Delegate.  This is the amount of funds that we allocate to the states, and each figure out a way to do it.  I don't care how you do it, but I won't give you a cent more if you run out of money.

1 and 2 are preferred over 3 and 4 for corruption prevention reasons.

#1 doesn't get rid of the current problem.  Neither does #4.

[KRonn]

I just bought a car two weeks ago. According to research I did, my old car did qualify for the clunkers program. However the dealer was iffy on the program, said the details on it and money available were in question. So to compensate they gave me more money off on the new car deal. I felt that was ok, and in retrospect it might have been best for me given that the program is out of money now, and there are so many applications waiting.

Good deal though and this should spur car sales. Chrysler is matching the clunker money, or I think more like giving an equal amount off of the new care price regardless of it qualifying for the clunker program. I guess that's what they can do with government money backing them up, but that should get them some nice sales increases.

[Caliga]

Cool, what kind did you get KRonn?

[KRonn]

Cool, what kind did you get KRonn?

I traded a 1998 Ford Explorer for  a 2009 Ford Escape, a small SUV. New car has a 4 cylinder engine, pretty peppy engine and much better on gas.

[Caliga]

Nice.