Cash For Clunkers: A Shining Example of How Government-Run Programs Work

Joan McCullough, the incomprable market analyst at East Shore Partners, has a great riff about the government managing health care.  If you were on the fence about this issue, McCullough will shove you over to her side with her description of how the "Cash For Clunkers" program is going:

Hey. Are you sure you really want the government runnin’ healthcare? You do? One trip to any US Post Office oughta’ relieve you of that sentiment. But if that didn’t “cure you” and you need further evidence of why the last place Uncle Sam oughta’ be pokin’ his nose is up a proctoscope, how about considering the Mongolian Bluster Duck they’ve made of the cash-for-clunkers program before coming to such an ill-fated decision?

Ahem. You probably won’t believe what’s goin’ on with this puppy. Nevertheless, here goes:

We’ll start with the bottomline. There is a fixed amount of do-re-mi to be doled out by the NHTSA (National Highway Transportation Safety Administration). It’s $1 bil LESS $50 mil for “administration”. That $50 mil, I guess, is to pay for the 30 employees being hired by the new agency the NHTSA has created, the Office of the Car Allowance Rebate System. And also for the 200 “contractors” to whom most of the work will be farmed out.

*contractors: There is something unclear here. The press all talks about “contractors” in the plural, all 200 of them. But the text issued by the NHTSA, cited below, talks of “the contractor”, singular. I can only find reference to one contractor so far. And it’s none other than Citigroup. Perhaps Citi’s division handling the request for  reimbursements is 200-workers strong. We’ll find out eventually, I guess.

Perhaps you will be as edified as I was to learn that this new agency with the clever acronym CARS is, like “All Gaul”, divided into three parts.

Like so (highlighting is mine):

The Transaction Oversight Division which will work closely with the outside contractor NHTSA has retained to review incoming request for payment from dealers to ensure that those requests are reviewed correctly and in a timely way.

The Data Analysis and Reporting Division will review data generated in connection with the program to help ensure the system's efficiency and detect problems with the process or indications of potential compliance issues.

The Compliance Division will work to detect and deter problems related to the program and coordinate closely with NHTSA's Office of Chief Counsel when possible violations are found. It will also work with the Transportation Department's Office of Inspector General on allegations of fraud. [Ref.: www.cars.gov/files/TheRule.pdf This is the 136-page handbook released Friday.]

Lemme stop right now and ask you a question. Do you have a headache just thinkin’ about this bureaucratic nightmare or what? I thought so. Take an Excedrin and keep readin’.

Compounding the Bluster Duck, the program ends on November 1. Or until the money runs out. Whichever comes first. Got that? Okay. For starters, customers were comin’ into the dealerships starting on July 1 which was the official kick-off date. But the government wasn’t ready to allow any dealers to “register” with the program until July 24 which is the date that CARS finally published its 136-page handbook. Thus, right off the bat, there is a bottle-neck and a lot of uncertainty. And guess what else? They changed some of the original parameters that Congress had cobbled together.

Isn’t that amazing? Dealers had been accepting trade-ins since July 1 and on July 24, they made alterations! If you really wanna’ go nuts, go here:

http://www.edmunds.com/help/about/press/153567/article.html

Car buffs are familiar with the above website, Edmunds. On Monday, they put out a press release, part of which reads like this:

… “As if Cash for Clunkers wasn't complicated enough, Edmunds. com has learned that the qualifications are a moving target. The EPA confirmed with Edmunds.com that last Friday the agency "refreshed" its combined mileage ratings for older vehicles and that the new data often gives potential trade-ins a higher mileage rating. Edmunds.com learned of these changes over the weekend from consumers who had checked that their trade's mileage rating qualified for the program up until Thursday. When shopping for a new vehicle for new vehicle over the weekend, they learned they no longer qualified.” …

Isn’t that a hot, steamin’ deal from the government? J, M and J. They didn’t notify anybody. They just changed some numbers on the website. I guess you hadda’ be there when they did it or you were left in the dust. Meanwhile on balance, the major glitch goes like this:

Joe SixPack goes into the dealership and they accept his trade-in and sell him an upgrade at the discounted amount. This puts the dealer on the hook to collect the $4500 back from the government. Sounds easy enough, right? Here’s the problem: at the time the dealer passes the discount to the consumer, he does not know how much if any clunker money is still left in the kitty or if his paperwork will be rejected (some times for ridiculous reasons) or accepted … or when he can expect to get his money back.

Some dealers are already complaining that the paperwork is next to impossible to complete. That sounds about right, eh? And that given the time and the myriad of BUREAUCRATIC STIPULATIONS, there are thousands of cars that could be sold but which cannot be, owing to the frustrations of the process itself. … “"I have over $300,000 outstanding," says Gordon Stewart, who owns Chevrolet and Toyota dealerships in Michigan, Florida, Alabama and Georgia. Stewart has sold close to 80 vehicles to customers under the program. Despite many efforts, his staff has been successful in applying for rebates on only three sales. “ … [Ref.: Autonews] That kinda’ says it all, eh? 80 request for reimbursement; 3 approvals.

The government spokesperson said that there was “not a huge backlog”. However, he had no idea how many reimbursement applications were waiting in line for approval. Typical government baloney. He did promise, though, that “eventually” on the website they have set up for the dealers to register and submit paperwork, they will have a “ticker” which will show how much money is left of the $1 bil. Lemme ask you something: If you don’t know what the request pipeline looks like or the time it takes for an average reimbursement to be approved, what the heck good does it do to signal how much money is left in the kitty?

Last, lemme lay this one on you; consider it the “icing on the cake”:

Also on an as/of basis, the government is now demanding as follows:

… “Dealers will have to remove the engine oil from the crankcase, replacing it with a 40 percent solution of sodium silicate (a substance used in similar concentrations in many common vehicle applications, including patching mufflers and radiators), and (run) the engine for a short period of time at low speeds (rendering) the engine inoperable," NHTSA said. "Generally, this will require just two quarts of the sodium silicate solution." … [Ref.: Detroit News]

Unfortunately, nobody so far has made any provision to pay the dealers for this work. Isn’t this hot stuff?

Are you sure you want this crew handlin’ your request for an MRI? I thought you’d come to your senses. Good show.

Comments

[tooearly]

In case you had no noticed, the government is already handling your healthcare: it s called Medicare and it is rated much higher in quality than private insurance. But don't let the facts get in the way of a good story...

[Contrahour]

Ahh...and there-in lies the rub. The current proposal is not like Medicare! If the current bill were simply an extention of Medicade or Medicare to those people earning less than 150 of the federal poverty level, I would support it. Instead, the Congress has taken on such an ambitious project that it's turned into a boondoggle.

I am all for providing better healthcare for the poor. America's system is geared toward the privileged, the educated and the rich. And the privileged should provide means for the poor to become less poor. However, given current monetary and economic policy, the poor will simply get poorer. Adding layers of government beauracracy isn't going to help anyone.

http://www.opencongress.org/bill/111-h3200/show

[Contrahour]

This is what congress should have done...from Andy Grove.

http://money.cnn.com/2007/05/29/news/economy/grove_column.fortune/index.htm

[sally]

Read this article: The Real Reason for the "Cash for Clunkers" Suspension. The ex car salesman blog shares exactly why they stopped the program. Even reports that some sales managers are calling asking for the money back because they were denied the rebate when the final paperwork was submitted but their car was already ruined by dumping a solution in the engine. They now have no car. Scary. See: http://tinyurl.com/ml9sdo