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Cash For Clunkers Ends, But Stimulus Isn't Over

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Clash For Clunkers is being scrapped. The National Automobile Dealers Association found in a study of dealers participating in the program that the $3 billion allotted to C4C has been exhausted. Yesterday, the Transportation Secretary announced that the program would be wound down under the guidance of his department. Lahood made the announcement after assuring the country's auto dealers today that they would indeed receive the cash reimbursements owed to them for Cash For Clunkers rebates they paid out to customers. "Check's in the mail," is essentially what the good secretary had to say, possibly enjoying the first time his name has been party to a national news headline (if you don't count news of his appointment).

However, Cash For Clunkers -- or Cash For Clunkers-type auto stimulus programs -- are far from over. A couple weeks ago I wrote about the Auto Stimulus Plan, a privately funded plan created by some of the largest dealers in the country, which offers generous trade-in incentives of up to $4500 to customers who buy a car with improved fuel efficiency over their current car. (See details of that plan in my earlier HuffPo piece here or at the program's website, www.automotivestimulus.org.)

I noted in my previous piece that one of the most important aspects of the Auto Stimulus Plan is that it allows car buyers who choose new or used cars to take receive either 10% (if the car they buy is 2 mpg more fuel efficient than their current car) or 20% (if it's 5 mpg more fuel efficient) of added trade-in value above the value of their car. The used car provision is important since people from areas as far ranging as used car dealers, die-hard environmentalists, and The Atlantic magazine had legitimate complaints about the government programs exclusion of used cars and the requirement that clunkers be scrapped and not resold.

Of course, the other upshot of the dealer-funded Auto Stimulus Plan is that it costs tax payers nothing. There is no $3 billion bill and no expensive, rapid bloating of a government department trying to keep up with paperwork. But, like all things Cash4Clunkers, it has not escaped controversy. Funding a program like the Auto Stimulus Plan is not easy: offering a dollop of up to 20% trade-in credit above the Kelley Bluebook value for a customer's old car cuts into the already narrowed margins dealers are working with. This means a dealership which wants to participate in the program must have significant capital on hand and a solid flow of buyers to amortize the cost of the program.

Controversy is born out of competition, and this case is no different. The large dealerships which created the Auto Stimulus Plan have the capital and customer traffic to be able to participate in the program. Smaller dealers don't. So, a few of the smaller dealers are competing outside of the marketplace; namely, they're going to the government and the media to position the Auto Stimulus Plan as somehow fraudulent or at least misleading.

Other dealers have taken a more underhanded tactic. They're using the marketing imagery and sales concepts of the Auto Stimulus Plan to lure customers into their showrooms. Then, they offer those customers 10% to 20% of extra trade-in credit -- except they base that percentage on arbitrary values for the cars or on non-accredited guides which value certain cars less than Kelley Bluebook or the other accredited guides used by government, banks, dealers, and customers for decades.

In the end, customers are getting screwed out of the real value of their cars. Doubtless, the Auto Stimulus Plan will absorb the small bumps of these relatively minor potholes, especially since it's only a small group of dealers brewing this sour business. This is a shame since the private plan is having a significant local impact. And I say "local" in the best sense: one Queens dealer, Paragon Honda and Acura, has seen a 100% increase in sales since it began its participation in the Auto Stimulus Plan. The general manager told me he's worried about running out of cars to sell. Very nice for him, we all think, but also nice for his sales staff, his mechanics, his parts suppliers, his marketing team, his administrative staff, his janitors, his wash people -- and the two new managers, the eight additional salespeople, and the new porter who have been hired by Paragon in recent weeks. Also, sales sparked by the Plan haven't just put bread on the tables of car industry folks -- it's put bread on the table of New York State, with Paragon alone generating $2 million in sales tax revenues from its latest spate of Auto Stimulus Plan sales.

Other participating dealers are crunching similar numbers. Germain Automotive of Columbus, Ohio reported that they had a 40% rise in sales over July -- when the government program was still running. One possible explanation for the strength of the private program is that it applies to a much wider group of car owners than Cash For Clunkers did, especially because of the used car allowance, which also makes the Plan's incentives available to people who can't afford a new car. An estimated 90% of car owners are elibigible to take advantage of the private plan's incentives; just 10% were eligible for the government program. And, it seems from the preliminary numbers, a healthy chunk of the eligible 90% have made good on the incentives offered by the Auto Stimulus Plan.

So, stimulus works. It's just the kind of stimulus that matters. If we think back six or eight months many of us recall claims that America was shattered, tattered, and in a million little pieces. Now, before the year's end, it seems the country is being put back together again. With the auto industry showing national gains from a single government program (even one that had flaws) -- and further gains from a creatively conceived, privately funded Plan -- the country might have finally found a good way to do stimulus.