Cash for clunkers: success or failure?

August 19th, 2009

Back in June, I first heard about the government’s “Cash for Clunkers” program and had mixed emotions about it. To be honest, I didn’t know how it would go over. The response was overwhelming as people took advantage of this program, dealers were happy to see customers actually buying cars, manufacturers had to step up production to keep up. This sounds like a terrific success. And, I have to agree. I think this is one of the best stimuli to the economy yet.

However, the failure, if you can call it that, is in the reimbursing of dealers. When customers trade in a clunker under this program, the dealer is obligated to take the clunker, apply whatever credits due under the program immediately, and close the deal. The dealer cannot legally have a contingency clause in the contract which obligates the customer to pay back any clunker cash if the application is not approved. The dealer cannot legally postpone the sale until the clunker cash comes in. Several other restrictions put the burden on the dealer to provide the credit and wait for reimbursement. Dealers are now out hundreds of thousands or millions of dollars waiting on horrendously slow reimbursement from the government. Car sales are up – good for the dealer and manufacturers; reimbursements are almost nil – not good for the dealer.

So, if the government is having trouble keeping up with claims from dealers, how does this give us faith in socialized medicine?