Don't Let Dealerships Mislead You About Cash for Clunkers

It’s debatable whether the Cash for Clunkers program, formally known as the “Car Allowance Rebate System” or the apt but unoriginal acronym “CARS,” will eventually be seen as successful either in terms of the economy or the environment, but it certainly has dealerships fired up.

While the dealers appreciate the customers — without Cash for Clunkers, customers would still be waiting in the wings — they are now concerned about not receiving the $3,500 or $4,500 rebate payments for the government. And it’s no wonder.

• Only 225 of the 635 National Highway Traffic Safety Administration employees are currently processing 412,000 dealership claims for the credit.
• The funding for the program may run out sooner than Labor Day. Update: I was right, the government announced Cash for Clunkers will end on Monday, August 24.
• Up to 80% of some dealers’ applications are being rejected by the NHTSA due to incomplete paperwork.

CARS has become a massive marketing campaign, getting hundreds of thousands of customers through dealership doors. I’ve seen flatbed trucks transporting crushed clunkers on their way to clunker purgatory. The program is evidently popular, but there seems to be confusion between customers, dealerships, and the government. And as far as marketing campaigns go, it beats Ford’s “Why Ford? Why Now? Why Not?” campaign that seems to be an admission that no one can think of a reason to buy a Ford vehicle.

If you expect to use the Cash for Clunkers credit to your advantage, know your rights. Dealers are not allowed to ask customers to place a down payment as security against the credit. They are also not allowed to require customers to settle with the dealer if the government fails to approve the CARS application. You can find all the rules at the CARS FAQ, but here are some of the relevant items.

Question: A dealer has demanded that I sign an agreement that requires me to pay the dealer the amount of the CARS program credit if the dealer’s CARS program credit application is rejected. Am I required to agree to this?

Answer: NO. To participate in the CARS program, you do not have to sign an agreement to pay back the dealer the CARS credit amount if the deal is rejected.

Question: The dealer says that I should take my trade-in car home after I sign the purchase agreement for a new car under the CARS program, and that I can pick up my new car after the dealer is paid by the government. Can I do this?

Answer: NO. The dealer must take title to and possession of your trade-in vehicle in order to submit a credit for reimbursement under the CARS program. You may not keep possession of your old car.

Question: A dealer has demanded that I sign an agreement that requires me to pay the dealer if the credit application is rejected because I submit incorrect information regarding my name, residence address, driver’s license number, or the title to my trade-in car. Am I required to agree to this?

Answer: NO. However, be aware that to participate in the CARS program you must certify under penalty of law that all information you provide is true. If your CARS program credit is denied because of a false statement made by you, the dealer may take action to recover the money or vehicle regardless of whether you sign such an agreement.

Question: A dealer has demanded that I leave a signed check or credit card authorization in the amount of the CARS program credit that he will return to me if the credit application is approved, but keep if the credit application is rejected. Is the dealer allowed to do this?

Answer: NO. The dealer must reduce the price of the new vehicle by the credit amount. If a dealer has a check or credit card authorization given by you at the time of the sale, the dealer has not actually reduced the price as required by the CARS program. Take your trade-in to another dealer if a dealer makes this demand.

Question: A dealer has included in the purchase agreement a requirement that I return the new car or pay the dealer the amount of the CARS program credit if the CARS program credit application is rejected. Do I have to sign this in order to participate in the CARS Program?

Answer: NO. You are not required to sign an agreement like this to participate in the CARS Program. However, you may agree to such a term, but your choice to agree is between you and the dealer.

If you believe a dealer is acting outside accordance with the law, you can report them to the NHTSA by calling 1-866-CAR-7891.

Clunker traffic jam angers dealers, Rick Newman, US News & World Report, August 19, 2009.