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Cash Flow: The Real Reason for the "Cash for Clunkers" Suspension

I've spoken with several dealers concerning the cash for clunkers program and this video sums up the "cash for clunkers" suspension in great detail.

It is true the program is successful and will use allotted funds. But the situation is more sophisticated that that.

First, because of the popularity, there is a huge backlog of paperwork. The 20-page application requires data from various sources and in many cases takes days to complete. Dealers continue to sell cars while they wait for all the information required. One of the many hold-ups is the fact dealers must disable the 'clunker' with two quarts of a special sodium silicate solution before the car crushers can give them a required signature. However, many dealerships have run out of this solution or have not received it. If dealers continue to advance people the CARS credit, on faith the government will refund them for destroying a car, their cash flow will soon be depleted.

Second, the CARS dealer website -- where dealerships submit applications -- cannot handle the traffic. Dealers continuously report website crashes rendering them unable to submit their application. This increases the amount of time dealers must wait before they receive their rebate check -- depleting cash flow.

Third, worry is building in dealerships because many applications for the rebate are being denied after the car deal. Some on this blog have expressed outraged after dealers have called them back demanding the customer make up for the denied CARS rebate (up to $4,500.00) or else they would have to return the car. Some have already had their trade-in cars destroyed. (Related: Sortable Cash for Clunkers Car List).

Rebates have been denied for an untold number of reasons; including a blank field in the 20-page application.

So you see, even if the government institutes an emergency funding guarantee, the cash flow problems, from an inadequate structural setup, remain.