July 31, 2009, 2:13 pm
Dealers Race to Get Their Clunkers Crushed
By Katharine Q. Seelye
Yana Paskova for The New York Times
The White House and Congress may be giving the “cash for clunkers” program a reprieve, but one can’t help wondering how many dealers and customers will have the confidence to go forward at this point. Things sound like a total mess in the showrooms.
“There is absolute frustration across the board,” Alex Kurkin, a lawyer based in Miami who represents several car dealerships, tells The Lede today. “As of this morning, they’re not really confident about any deals, and no one can give them advice about what they should be telling their customers.”
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.
We spent a couple of days earlier this week following the whole complex program, from dealer to scrap heap, and found twists and turns in it that are making it a nightmare now for everyone involved.
The program requires that the clunkers be put out of service for good, so dealers must destroy the engines on cars that are traded in. We watched this process yesterday at the DCH Paramus Honda in Paramus, N.J. It is quite laborious and potentially dangerous. And it certainly is final.
Nick Clites, who is in charge of used cars for the dealership, was prepping a 1988 BMW 535IS, with 214,000 miles on the odometer, for its death. He drained the oil, then donned a silky blue protective suit, goggles and gloves and poured a sodium silicate solution into the engine. He revved the car, and within a few seconds, the solution hardened into a glass-like substance, the engine seized up and the car was dead.
So here is one question: With the program now on shaky ground, even with a new infusion of money, what consumer and what dealer will risk rendering an engine irretrievably unusable?
Well, as it turns out, a lot of them are doing so, because unless the dealers can prove to the government that they have killed the engines and scrapped the cars, the government will not reimburse them for the $3,500 or $4,500 discount that they have given the customer on a new, more efficient vehicle.
Barry Magnus, the general manager of DCH Paramus Honda, told us he was owed more than $80,000, and he wondered if he would ever see it. The government has said it would take 10 days to reimburse the dealers, but that was before the program apparently ran out of money and devolved into chaos Thursday night.
Today, dealers are frantically trying to move the old trade-ins to the scrap heap so that they can get reimbursement before the money tap shuts off. Until they can certify that the car has been decommissioned, they cannot submit their paperwork to be repaid.
“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.
In any case, Ms. Maggio said, dealers are “hitting the panic button” today.
“We have been overwhelmed with phone calls from the dealerships,” she said. They have already killed the engines, and want her to pick up the heaps.
And on hearing the news that the government might be pumping more money into the program, she said, they are stepping up the process. “They’re worried that the new money might last only two days,” Ms. Maggio said. “But until it’s scrapped and the paperwork is done, it’s not a done deal,” she said. “They’re driving me crazy.”
Mr. Kurkin, the lawyer in Miami, said that many dealers are attaching clauses to their sales agreements, saying that if the government money does not come through, the customer will have to make up the difference.
“If a dealer doesn’t have a separate document addressing this possibility, the dealer will likely have to eat it,” Mr. Kurkin said. “I certainly see a lot of litigation over this.”
Dealers Step In | 7:43 p.m.
While the government’s “cash for clunkers” program may be stalled at a yellow light, a group of private auto dealers is stepping into the breach.
The group, made up of about 50 of the nation’s biggest dealers, who sell both foreign and domestic makes, are hoping to capitalize on the popularity of the “cash for clunkers” program with their own “automotive stimulus program,” but with looser requirements.
“So many customers were so close to qualifying,” but their cars did not meet the government requirement of getting less than 18 miles per gallon, said Brian Benstock, general manager of Paragon Honda, Paragon Acura of Brooklyn, and one of the participating dealers. Still, he said, the government program was clearly successful, which is why it ran out of money. On Friday, the House voted to add $2 billion to the program; the Senate is to vote next week.
Set to run for 12 weeks, the dealers’ plan requires that the clunkers being traded in have been registered and insured by the owner for just six months, half the government’s requirement. It also allows customers to trade in their clunkers for used cars, not just new ones.
“Clunker customers would like the option of going from a 15-year-old car to a 5-year-old car,” Mr. Benstock said. The government plan requires that the customer buy a new car that gets at least 4 more miles per gallon than the clunker; the dealers’ plan says only that the replacement car be more fuel-efficient, so it could get just one more mile per gallon.
That may help sales, but is likely to do little for the environment. But experts said the government plan would do little for the environment either.
Michael Gerrard, director of Columbia Law School’s Center for Climate Change Law, said in a statement that the cash-for-clunker program is not a cost-effective way to reduce fuel use or greenhouse gas emissions. Any energy savings, he said, could take several years to realize, considering the time it takes the fuel savings from a new car to exceed the energy cost used to make it.
http://thelede.blogs.nytimes.com/2009/07/31/dealers-race-to-get-their-clunkers-crushed/?hp