Cash for clunkers program idles in neutral

Megan Holland

While some Alaska auto dealers are embracing a new federal stimulus program that lets customers trade in old gas guzzlers for a $3,500-to-$4,500 reduction in the price of a new fuel-efficient car, most are holding back. They say they do not want to get hung out to dry by the federal government and are telling customers to return at the end of the month when the program's fine print is written.

The Cash for Clunkers program, or Car Allowance Rebate System, was signed into law last month by President Barack Obama and officially started July 1. But auto dealerships, which must file the necessary paperwork on behalf of qualifying customers, can't get any money until the end of the month, after the rules and regulations are finalized.

That hasn't stopped some dealers from jumping on board in hopes the free money will spur depressed sales. Some Alaska dealers have already sold cars under the program, expecting to be reimbursed by the U.S. Department of Transportation. Others are getting the customer's paperwork ready so they are first in line for the funds, but holding onto the keys until approval comes through.

Some manufacturers are eagerly anticipating the program. Hyundai Motor Co., South Korea's largest carmaker, is advancing money to U.S. dealers so they can sell cars immediately to customers taking advantage of the deal, according to media reports.

Part of the overdrive is a worry that the money allocated to the program, just $1 billion, will run out before it expires on Nov. 1.

"The odds are the consumer that waits will not have the money available for him," said Dave Blewett, president of the Kendall Auto Group, which owns several dealerships in Alaska.

Blewett said his salesman are lining up customers and finalizing as much of the paperwork as possible before July 24, the estimated date when dealers can start applying to the National Highway Traffic Safety Administration for money.

"Once those rules and regs are posted, you got to get going on it," Blewett said.

The $1 billion will probably last through the first 250,000 sales, estimates the National Auto Dealers Association. That's a small percentage of expected new car sales.

In 2007 and the preceding years when the economy was healthy, about 16 million new passenger cars and light trucks were sold annually in the U.S., according to the dealers' association. In the first six months of this year, with auto sales down by at least 35 percent -- and in some parts of the country much more -- 4.8 million vehicles were sold.

Rick Morrison, owner of Morrison Auto Group and a board member of the Alaska Automobile Dealers Association, said Alaska dealers have been pretty lucky. Sales are down only about 15 percent here, he said.

Morrison, who sells several car brands in Alaska from Saturns to Porsches, is telling customers to be patient.

"There are still a lot of unanswered questions," he said. "It's very risky for the manufacturers and dealers to do a lot with it."

Morrison said his group has so far sold two cars under the program. They were customers and trade-ins that he was sure would qualify.

The National Auto Dealers Association is advising its members to wait.

"Dealers not in compliance with the program may be held liable for any penalties and may have to fund the government's incentive out of their own pockets if the sale does not meet the program's requirements," said spokesman Charles Cyrill, based in Washington D.C.

Some of those details include which salvage companies will take the junkers, what proof of insurance will be necessary, and whether cars that owners still owe money on qualify.

The purpose of the program is to spur the economy, remove the beaters from the streets and get American auto workers building cars, although the money is not restricted to American-made vehicles.

"This is actually stimulus money hitting the street," Morrison said. "And it's a very good, environmentally friendly program."

Morrison said Alaska doesn't have as many clunkers as other cities in the Lower 48 because they can't withstand the cold, but there are still plenty of people here who should consider applying.

This incentive to buy a new car will free up a lot of pent-up demand already starting to break loose, he said.

Jon Cook, legislative director of the Alaska dealers association, warns that customers are still going to have to qualify to buy new cars in a tight credit market. "You might have a lot of willing purchasers but not a lot of willing banks," he said. "Even if you get the $3,500 or $4,500 credit, it doesn't mean you can get financing."

"It will be interesting to see what impact this has," he said.

Find Megan Holland online at adn.com/contact/mholland or call 257-4343.

Age and mpg will determine which beaters will qualify for credits

Here are the basics of the Car Allowance Rebate System program:

• Your trade-in car or truck cannot be more than 25 years old. It must have average gas mileage of 18 miles per gallon or less and be drivable. It must be owned, insured and registered by you for at least the past year.

• The program only applies to those buying or leasing new cars that cost less than $45,000 and get more than 22 miles per gallon.

• The credit is $3,500 if the fuel economy is 4 to 9 mpg higher than the trade-in. The credit is $4,500 if the fuel economy is at least 10 mpg higher.

• The trade-in will go to the scrap yard. If you can sell your old car for the $3,500 or $4,500, the program won’t be worth it for you.

• There are variations on some of these rules for different kinds of vehicles. Check the government’s Web site for specifics: www.cars.gov.

• The Better Business Bureau says consumers should only deal directly with their auto salesmen — they do the applying, not the consumers. Beware of scam Web sites asking for personal or secure information.

Worthwhile Web sites

• The government’s Web site is the best place for information on the program: www.cars.gov

• To find out how many miles per gallon your car officially gets (the figure that will be used regardless of the actual mph) go to: www.fueleconomy.gov/feg/findacar.htm

• Auto researcher Edmunds has compiled a list of vehicles eligible for the program. Follow the prompts on www.edmunds.com or get there directly from adn.com.

Edmunds list of eligible vehicles
By MEGAN HOLLAND
mholland@adn.com