Cash for Clunkers: Good and Bad News in Wake of Program's End

Aug. 27, 2009— -- When Kevin Murphy logs in to the government's "Cash for Clunkers" computer system, he sees two very discouraging words: "under review."

That was the status yesterday of all seven "Clunkers" rebate requests that Walker Motors, where Murphy is a sales manager, submitted to the federal government. The value of the requests made by the small Ford dealership, which is based in Montpelier, Vt., total more than $30,000.

"It's absolutely terrible," he said. "We haven't gotten paid anything yet."

Though the "Cash for Clunkers" program is officially over, complaints persist over how long the government is taking to reimburse dealers who, under the program, gave customers rebates of up to $4,500 when they traded in old, fuel-efficient cars for new ones.

The Department of Transportation eased some concerns yesterday when it reported that dealerships submitted nearly 700,000 rebate requests totaling $2.877 billion, below the government's $3 billion budget.

The DOT also said more than 2,000 people are now processing dealer requests. But the department didn't reveal what percentage of the requests had actually received funding and when it expected all dealers to be paid back.

"Some people have gotten (reimbursements), but they're still slow, they're still trickling in," said Jessica Caldwell, a senior analyst with the auto research site Edmunds.com.

Some dealerships, she said, have now been waiting a month for reimbursements.

"You'd think at some point, people would be getting money," she said.

It's a problem, she said, that continues to hurt some customers because some dealers refuse to make good on Clunkers sales until they get their government reimbursements.

The government, meanwhile, continues to tout the economic benefits for Cash for Clunkers. While critics have argued that the program would only produce a short-term boost to the auto industry at the taxpayers' expense, analysis released by the DOT and the White House Council of Economic Advisers paints a rosier picture.

'Cash for Clunkers' Expected to Boost GDP

According to preliminary analysis by the council, sales under Clunkers will boost the nation's Gross Domestic Product by 0.3 to 0.4 percentage points for the third quarter of the year -- July through September -- and for the last quarter. The latter increase, the council said, will come as manufacturers like Ford and General Motors increase production to replenish inventories depleted during Cash for Clunkers.

The ramped-up production will help save or create 42,000 jobs in the second half of 2009, the council said.

The government, echoing analysts' predictions, said that auto sales will drop with the conclusion of Clunkers but offered no forecast on how steep the decline would be, saying only that sales were expected to be "converging to a more sustainable level."

Some have said they expect auto sales to drop to levels seen before that start of Clunkers. In the first seven months of the year, U.S. auto sales were down 32 percent from the year before, according to Ward's AutoInfoBank.

In a statement released yesterday, Edmunds.com compared the expected post-Clunkers drop to "a painful hangover."

"Cash for Clunkers distorted the market in a way that benefited the industry for four weeks," said Edmunds.com CEO Jeremy Anwyl. "Now the payback begins."