A few months ago I told you all about my experience selling Chryslers during the auto industry meltdown. I made a brief mention of Cash for Clunkers and had many people asking me to write about my experience with it. Today I'll tell you that story.
How the Program Worked
For those who don't know, Cash for Clunkers (Officially known as the Car Allowance Rebate System or CARS) was a U.S. government backed program launched in July of 2009 with the goal of
removing all the cheap used cars from the market and spending billions of taxpayer dollars kickstarting the economy by boosting car sales and reducing pollution/energy consumption by taking older and less efficient vehicles off the road. Taking place shortly after GM and Chrysler's bankruptcies, many hoped the CARS program would provide a shot in the arm for the struggling American automakers.
The premise was simple. If a customer traded their old, inefficient car for a brand new and more fuel-efficient one, they'd get a government rebate of either $3500 or $4500 applied to their new car purchase. The size of the rebate was tied to the increase in fuel efficiency of the new car. The rebate rules are pretty long and tedious so I'll save you all the details, but I can spell it out in the comments if anyone really wants to know.
After the deal was done each trade-in had its engine permanently disabled and was sent to a junkyard. The dealership then scanned and submitted a stack of paperwork via a barely-functioning government website to apply for compensation for each trade.
The Sales Experience
The best word I can use to describe selling cars during the Clunkers program is pandemonium. Not only was the government handing out money for new cars, Chrysler was too. They'd just announced a new program offering to match the government's rebate, meaning a customer could get up to $9000 off a new car before any dealer discount. We'd all been instructed to arrive at the dealership a half hour so we could be prepared for a busy day, but we had no idea how busy we'd be. Despite it being a Wednesday morning when most people would be at work we still had a group of customers waiting at the front doors when we showed up that day.
My first customers were a young woman and her parents. She owned an old Jeep Grand Cherokee with a badly slipping transmission. Seeing the value in the Clunkers program, her parents brought her in to help her purchase her first brand new car. She ended up getting a very nicely equipped new Jeep Patriot for about $13,000. The one snag in the deal was she wouldn't have her down payment money until the end of the next week. We finished the rest of the legwork for the deal (finance approval, insurance, etc.) and agreed to hold the car.
By lunchtime things were going full swing. Our phones were ringing off the hook and we had a showroom full of customers. We had a record-breaking day, then broke that record the next day, and broke that record the day after that. Everyone on the sales team worked 14+ hours per day and we didn't have the luxury of lunch breaks. Management set up an ongoing pizza buffet in the meeting room so we could run back and grab a slice in between customers.
I don't know what day of the week it is anymore, but this pizza sure is tasty.
The crowd finally slowed down about a week into it. By that time we were seriously low on inventory. You see, the timing of the Cash for Clunkers program was a double whammy for us. The model year changeover at Chrysler's factories takes place in midsummer. While the engineers are busy updating the tooling for any revised parts coming down the line the assembly workers take two weeks off. In a normal year we'd be enduring a bit of an inventory drought at that point in time, but this year Chrysler was also in the midst of a bankruptcy reorganization. Many of their vendors were only occasionally being paid, and that includes the auto transport companies. Thanks to this we were already short stocked when the program kicked off, and it only got worse as the sales rolled in.
Inventory continued to dwindle. When my first customer picked up her new Jeep Patriot we'd been sold out of the mini-Jeeps for days. Her Patriot still showed in the website inventory during that time and we'd taken about 100 phone calls on that car alone. The phone continued to ring off the hook, everyone asking if we had any CARS-eligible vehicles to sell. We didn't. We started turning away customers because we had nothing to sell them. In only a few weeks we'd liquidated almost our entire inventory.
The CARS program had its issues as well. Being government-run it was chaos from the start. In the creation of the program they apparently hadn't asked the opinion of anyone with actual car business experience, as they grossly underestimated the public's response to free money for buying cars. When the program was conceived the Department of Transportation allocated $1 billion toward it and expected the funds to last from July 1 to November 1. A few days before the end of July they dropped a bomb on us: Funding was exhausted and if the dealership wanted to get paid we needed to submit the paperwork before midnight that night. Thanks to the website being horribly buggy we had a backlog of about a week's worth of paperwork to deal with, so we went into full-on panic mode. Our managers sent the salesmen home, locked the doors, and got started attempting to submit paperwork.
At about 10:30 that night I was settling down for a little TV before bed when my phone rang. It was one of our sales managers, calling in a panic. The scanner and computer had suddenly stopped talking to each other, they were having problems with the CARS website, and needed my help. Being the store's internet sales manager I was supposed to know a lot about such things (hint: I really don't, but I know how to use Google). I growled something about being right over, put my shoes on, and headed for the door.
Right as I was getting in my car the phone rang again; once again it was the sales manager. "Bring a case of beer," he said. "I'll pay you back when you get here."
I got to the dealership to find the three sales managers plus the F&I guy losing their minds. I fixed the scanner without much fuss, but the big issue was the CARS website. Every dealership in the country was frantically trying to submit paperwork at the same time. The servers were overloaded, the website down. There was nothing we could do so we sat down in the customer lounge and drank beer. We ended up ordering wings, watching baseball, and shooting the shit as we finished off the case.
The next day the government extended the deadline to file paperwork, and Congress soon approved an additional $2 billion which would keep the CARS program running for about another month. Not that we had any inventory.
The Final Days
There really wasn't too much going on at our dealership during the final bit of Cash for Clunkers. With our inventory shortage business slowed to a trickle and we mostly got by selling used cars. We did have one small bout of excitement, though. When Chrysler axed a bunch of dealerships back in May we'd purchased a truckload of vehicles from a defunct Dodge store in Virginia. They'd been caught up in a mess of botched title work ever since, but in August we finally got it cleared up and the truck was on its way, carrying five Dodge Calibers and two Grand Caravans. We all hurried to our phones and started calling every customer we could.
Seizing an opportunity our office manager reserved the first Caliber, trading in her rusted-out Ford F150. The last one went to a customer in Buffalo, about three hours away. He'd been calling every dealership in a constantly-expanding radius trying to find one, and offered us $500 over MSRP before we'd even told him the car's price. Every one of the cars was spoken for that day, before the truck even arrived.
When it was all over we had 15 cars left on a lot designed to hold over three hundred. A few days after the program wrapped up the auto transporters started rolling again. Thanks for the prompt shipments, guys!
Until this point I've left out a big piece of the story: The trade-ins.
During Cash for Clunkers, outrageous stories were circling all over the internet. People were junking perfectly good Mercedes-Benzes and Porsches and things! It was craziness, all the money being thrown away! I can assure you these stories were isolated incidents. The vast majority of cars we had traded in were complete and utter pieces of shit. I already mentioned the woman who had a Grand Cherokee with a slipping transmission. There were plenty of others, too. Trucks with rotted frames. SUV's with knocking engines. Tired old vehicles approaching 300k miles. We did have a few people attempt to trade in cars that were worth more than the government would give them, though. In those cases we'd just give them what the car was worth and recondition it for resale on our used lot.
Pictured: Typical example of a Clunker trade
The one that really took the cake was a late 80's Dodge Ram 15-passenger van. It was wrecked in the front end and was dumping transmission fluid and coolant at an alarming rate. The customer had loaded up several gallons of both fluids in the back and limped the van to our dealership, stopping every couple miles to refill. It met the Cash for Clunkers rules, though- they just said it had to run and drive, they didn't specify how well.
As I mentioned at the beginning of this exhaustingly long article, every trade had to be junked after having its engine permanently disabled. We set up a deal with a local junkyard; whenever our back lot started to fill up they'd send a few trucks down and haul them away. The killing process was a lot less dramatic than I expected. No horrible noises, no smoke, no nothing. Our technician would pull the car into the shop, drain the oil, then drive it out to the back lot. He'd then pour a sodium silicate solution into the oil filler and run the engine at a steady 2000 RPM until it seized. When heated by the warm engine, the silicate would solidify into a glasslike mass in the bottom of the crankcase. I watched a few of the cars meet their demise. The engine would run for a couple minutes and then gradually rev down as if the tech was easing off the gas, and then shut off as if he'd turned off the key. That's all there was to it. It was very anticlimactic.
Cash for Clunkers has been blamed for many difficulties in the used car market, but for the most part it didn't affect things too terribly much. Yes, it became very difficult to find a cheap used truck or SUV for the year or so after the program. But it didn't affect used cars very much because the majority of them had fuel economy ratings too high to qualify for the CARS program. What really affected used car prices during this period was the fact that we were in a recession and cheaper used vehicles were in very high demand.
And today? There's really no lingering impact. Bear in mind the cars that qualified for this program were worth $4500 or less... five and a half years ago. If the CARS program hadn't happened most of them would've been junked years ago anyway. Yet those of us in the car business still hear things like "thanks to Cash for Clunkers I can't find a decent used Honda for my teenager" on a regular basis.
For the car business things didn't wind up exactly as planned either. The program did help the American automakers a bit, but Toyota and Honda were the big winners.
After the program new car dealers suffered through what many industry analysts referred to as a "Cash for Clunkers hangover." The going theory is that the program didn't increase sales; it just pulled them forward. Many analysts agree that most of the customers who bought using the program were going to buy a new car soon anyway, as evidenced by new car sales being mind-fuckingly atrocious for half a year following the conclusion of CARS. Having just gone through bankruptcies we were pretty well used to it though, but Cash for Clunkers was a nice break from the monotony. But it's all water under the bridge. Fast forward to a few years later and we're enjoying the biggest auto sales boom in recent history, and so ends my Cash for Clunkers story.