Car Allowance Rebate System (CARS) Goes Live

Cash-for-Clunkers Spells Opportunity for Franchise Dealers’ SF Departments

OK, I really, really don’t like the Car Allowance Rebate System (CARS), the new stimulus law passed by the Federal Government and signed into law by President Obama on June 24, 2009. There, I have said it.

I think it is a great example of how our government has lost touch with the average American. I can’t stand it because it left out used vehicles and independent auto dealers. Our elected officials have a smattering of reasons for passing it, all tied to helping stimulate new auto sales (since it owns two-thirds of the Detroit Three), but the means to the end are really lacking.

Additionally, as this is being written, the law leaves loopholes big enough to drive a Ford Excursion through, which could either actually help spur sales of autos or absolutely hang an unsuspecting dealer out to dry. Oh, well, such is to be expected. I do hope by the time this makes it to you that the big question – Can you trade in a gas-guzzling truck for an auto that gets just four miles per gallon better? – has been definitively answered..

Without a doubt, the program will help sell some new vehicles, just not the vehicles generally expected to work well with SF customers. If the tax stimulus checks of last year helped sell cars, this really should. While the list of available vehicles that qualify as gas guzzlers is rather limited (most are trucks and certainly most are 10 years old or older), I was looking at some of the possibilities.

The poor Pontiac dealers were thrown a bone here. They have two relatively inexpensive vehicles (G3 and G5), and a third (G6) that can be so. The available incentives from GM can total as much as $4,000 (2009 G6 as of 7/7/09) by my count, depending on whether or not your trade-in is a GM product. Add a CARS incentive of $4,500, and that totals $8,500! Let’s take the example of a Pontiac G3.  It has a base list price of $14,335 (and total incentives of $7,750),  That means even with a payoff on the vehicle being traded in of $3,000 (think BHPH customer)   you still have equity of $4,750, meaning that a customer is financing just $9,585 before tax, title and license.    That translates to equity for a SF company and a very affordable payment for the customer. I’d say that would equal a lot of deals.
As you look at the affordable car and truck lineup across the spectrum, there really are a lot of options for these customers. Additionally, I have had the opportunity to talk to what I would say is a reasonably representative sampling of consumers owning examples of gas guzzlers. Nearly every person acted like they had hit the lottery and all were inquisitive once they found out I was tied to the auto industry. How they could cash in? The fact that gas has inched back up to $3 a gallon has also fueled (pun intended) additional interest in getting out of clunkers.

So what does that mean for you? A number of things. First, you absolutely need to understand the program inside and out. Unfortunately, as I have pointed out, loopholes in the law still exist as I write this. By the time this reaches your eyes, those loopholes should be closed. Do your due diligence. Certainly, our AutoDealerPeople.com Web site will stay up-to-date with late-breaking details. Just make sure you look before you leap.

You will also need to check to see if the finance companies you are working with are going to put any additional restrictions on transactions involving the CARS money. Next, you must make sure you are registered with the government for the program. I know it sounds trivial, but it won’t be if you can’t get your money from the government.

You will also need to have some additional liquidity; an average $4,000 government incentive per deal represents far more than the gross profit on a new vehicle sale. If it takes an average of 10 days (if you believe that) to get your money from the government, that means accepting a bunch of clunkers will certainly eat some additional cash while you wait. You had better be prepared for it.

As always, it will be important to identify a Red Balloon (subprime credit) customer from a Green Balloon (prime credit) customer. It should be relatively easy if you pay attention to what the customer is driving, but don’t lose track of your SF selling process that should be set up to allow you to identify the credit quality of your customer. If you don’t correctly identify the customer, you will wind up showing them a $40,000 Yukon – or worse – and kill your deal before you get it started.

Now all you need is customers. Here is where I throw out a strong warning. There are a lot of companies scrambling to make packages and clunker lists available to dealers. Remember a couple of things. First, the clunkers need to have been owned and insured for the past 12 months. That means if you are buying a list, it had better have its origin in the insurance world. Be careful what you buy. There is a provider that can provide insurance-based names by make and model year in most states for about $0.09 per name. Check my Special Finance Group on AutoDealerPeople.com for more information.

Next, if you do a direct mail promotion, be careful of what your mailer looks like. The Attorneys General around the country have been on a rampage against dealers who have been using mailers that look like the government is sending a customer a letter. (Don’t take my word for it, ask Tom Hudson.) There is a fine line between an enticing envelope and a letter that  gets an AG’s letter.

During what should be a bonanza period for auto dealers, the 10 Critical Components of SF, as always, will be required to deliver vehicles. The biggest challenge I see is for the many dealers who walked away or scaled back from SF, thinking it was dead; it will be hard for them to react now. Many dealers have terminated talented SF personnel expecting the role to be handled by other members of the team. It isn’t that the SF customers can’t be worked properly by someone wearing multiple hats. That person just has to have the training and a plan.

The CARS program, even with all the warts I see on it, will allow franchise SF dealers to sell a number of vehicles. The questions remain: Are you ready, and do you have a plan?

Until next issue,
Great selling!

Vol. 3, Issue 4