NADA Is Worried: Wants To End Cash For Clunkers

Aren't the traded in cars sup[posed to be destroyed?

Only the engine and transmission. The rest can be resold.

Actually engines are destroy. That's the pint of get the older engines out of circulation.

Nice clunker on the pic

'64 Dodge 440 Station Wagon.

Actually, it's a '63 330 wagon.

That car is not a clunker, judging by the photo that car probably hasn't polluted our atmoshpere in 20 years...

I stand corrected.

the grill is worth @ $2,000.00 .

First car dealer yell out for some help. Now they want to stop the program. Why don't you read the outline of what is required to a be clunker instead just accept everything that drives in.

If dealerships are worried, stop making sale and wait for your cash to come and then proceed to sale. Isn't that just common sense. Or are you just being greed of making sale at all cost including your own.

That’s not the problem, the C4C programs have been unexpectedly successful and the agency is understaffed. Dealers were promised cash turn around in ten days, now near a month most have not been paid. Dealers are out hundreds of thousands of dollars waiting for the byzantine process to works.

Brembo, you can't be serious? The government needs to get the money to the dealers as promised.

If a dealer does 10 clunker deals, he is fronting $45K of his own money which needs to be reimbursed in a timely manner.

No buyer is going to wait a month to get his car while the delaer waits for the $4500.

That is true. I agree with that. But let's say that the after car sold cost on average 17K. Now multiply the 10 - from your example - that makes 170K and subtract the 45K that they front equal to $125000 left to pay whatever else and enough to wait for the cash owed by the program.

As long the dealerships did their due diligence to make sure that the car trading in meet the guide then there would be no reason for not to get their reimbursement from the program.

Also, in order to qualify for cash from the program, the clunker must be trade in for a deem "fuel efficient car". So you can't trade-in an old gas guzzler for a new gas guzzler and expect for the $4500 credit.

Dealers know the rule, but they cross their fingers that the government over it.

"Dealers know the rule, but they cross their fingers that the government over it."


Brembo-


Show my evidences of this. This is just a naïve statement of dealer mistrust.

"That is true. I agree with that. But let's say that the after car sold cost on average 17K. Now multiply the 10 - from your example - that makes 170K and subtract the 45K that they front equal to $125000 left to pay whatever else and enough to wait for the cash owed by the program. "

Well, that would make sense if it wasn't for the fact that the dealer has to actually, you know, pay the manufacturer for the cars they sell. It's not like the manufacturer gives the dealers the cars for free and they're pocketing all the money from the sales. If the average sale is $26300 and the average CARS rebate is $4200 and the average dealer profit is 5% (which I guarantee is optimistic), the dealer is floating an average of $2900 of their own money for every sale under that program. Now multiply that by the hundreds of thousands of cars that could potentially NOT get reimbursed, and you have a pretty big problem. Dealers who have done a bunch of these things could conceivably go right out of business.

Take note that before deals can be done the dealer must submit the paperwork which is almost 10 pages in regards to the "clunker" being turned in. And deals cannot be approved prior to this happening. So as of right now, dealers are waiting for money on deals that were submitted and were correct.

The problem is that the government stepped in and gave this "great" program which is falling apart because in typical government style, they don't want to pay. All this money ran out so quickly, they funded more, but so many have yet to get their pay. I know for a fact that NY auto dealers have all but stopped making the deals on this program not because of the cars not qualifying, but because they still are waiting for the money reimbursed from previous deals. You can only run on so much capital and as a car dealer you have to have inventory vs. cash in the bank. The banks do random monthly checks at dealers to check stock, inventory, and to ensure the money is in the bank.

If I bought a 20k car with a 4500 discount. I still sold a car that the bank owned for say 17k. With 4500 off that leaves me with 15,500 from the sale, not counting commissions and dealership costs (car prep, etc.) and the bank is looking still for their money but I only have 15,500 to spread. That 4500 is starting to sound a lot better now. And that is just one car.

Once again I say to the president, "it's the economy stupid, stop spending money" Cut taxes, remove the capital gains temporarily and seriously let free-markets run as they are intended.

I would just like to add one thing, if dealerships dole out $45,000 in cash for clunkers rebates, and the government pays them $45,000 in a month or two- the dealership has actually LOST money on that transaction (as defined above). Money has time value. If the dealership knows its opportunity reinvestment rate then it is a rather easy calculation to perform.

So, LaHood's statement that "They're going to get their money" is really not completely true, they may get some money but to say that it is a "reimbursement" is wrong- that implies full compensation. They will not really be fully reimbursed.

The interest they lose out on in one or even two months is negligible.

It isn't a massive amount (although it wouldn't necessarily be the interest you would use in order to determine it, the opporitunity reinvestment rate is not necesarily, but could be, bank interest. Corporations really should use their weighted average cost of captial [WACC] as a hurdle value for investments when doing temporal analyses. This value is closer to 12%. Actually any rate below the WACC destroys company value), but whether or not it is negligible depends upon your particular profit structure.

Using 12% and 2 months on 45,000 you are out $886.68 or about 2% of the total. However, the typical profit margin is only around 8% ($3600.00), your profits decline by ($886.68/3600.00)=24.63% ~25%. That isn't necessarily negligible.

Correction: $886.68 needs changed to $913.68. I used the wrong sign and didn't pay attention to it thereafter. The percentages round to the same.

Your logic is flawed. If the dealer knew a way to get 12% from his dollar he wouldn't be running a dealership. 8% is reasonable.

2 months on $45,000 at 8% (what he could have got) is a loss of $600. Profit margin $600/3600=17%

Now incorporate the fact that this is generating sales, lets take a conservative 20% more sales that wouldn't have happened. So $9000 of new sales, 8% of that is profit=$720

So even if one in 5 new sales wouldn't have happened, the dealers are still making more then they would have.

wow, ya my logic is flawed, say they average 2 new customers... not $9000... at the average new vehicle cost of $26,300, 8% of two sales would be $4208 profit, which is much more then the $600 from lost investment.

No. The WACC is NOT profit. They are not directly comparable as percentages. But is DOES represent an ROI hurdle, and is what is used in corporate temporal analysis. It is actually somewhat convoluted. You can earn a positive profit and still destroy corporate value. I see what you are saying, but again WACC and profit are not comparable as percentages, they actually refer to two separate things, and it is actually WACC that you must overcome to meet your obligations to owners and debt holders. Proft occurs afterwards. BUT it is WACC that is used in the temporal calculations. (Have you ever taken a college econ class?)

Futher, this analysis is about government payment to the dealerships NOT the total economic of the program. Additional sales mean nothing to the former- the more time the goverment takes the more the dealerships profit declines, which is why I added "...LOST money on that transaction (as defined above)" in the original message in order to avoid that.

"You can earn a positive profit and still destroy corporate value."

Hell, that should be "a positive ROI". I'm doing it too.

The act of subtracting it from profit will require some thought on my part though... it is the correct discount rate, but does it represent an actual lost value? Well, yes and no...

Dealers and car makers would do better sticking with offerings like 0% and rebates on vehicles turned in that are of the same brand, or something for new comers. If I had waited I would have dove on a new car for 0% instead of this pre-owned at 6.9. Considering my first pre-owned as a 3.8% interest.