Cash Stuck in Clunkers Traffic Jam - Page 2 of 3

Cash Stuck in Clunkers Traffic Jam

For clunkers program transactions, banks that made car loans to customers have continued to pay dealers overnight. But three weeks after his first sales under the program, Gregory Jackson hasn’t received any money at all from the U.S. Treasury. He still has to immediately pay the bank that helped him put inventory on his lot. Until the Treasury pays him, he has to dig into his cash reserves — his operating capital — an average of $4,000 for each vehicle he sold under the program.

Cash Flow Issue

Because black-owned dealerships tend to have smaller reserves of cash than majority dealers, they are especially feeling the pain. Very few African American dealers John Stelly knows of participated in CARS. The reason: cash-flow problems. “Even though there is an upside to the program, if you had cash-flow problems before the program, it will definitely magnify it even more,” he says. Minority Ford dealers are experiencing anxiety, says A. V. Fleming, executive director of the Ford Motors Minority Dealers Association (FMMDA). They have bankrolled deals in which paperwork is still in the CARS pipeline and has not been officially approved. “Nobody I know has gotten their money back yet,” he says.

Deerbrook Forest Chrysler Jeep in Kingwood, Texas, has sold about 15 vehicles under the CARS program. Its business increased overall by 20% to 25%, fueled further because CARS brought in buyers who had been out of the market since the mid-1990s. In some cases, it was more advantageous to both the dealership and customer to do the trade-in and purchase outside the program. “The government had stated that we’d be paid within 10 days, but it was obvious that it was not prepared for the amount of volume that was done in such a short period of time,” says owner E. Dale Early. “We haven’t been paid a dime, and that really causes us to have to look for other ways to generate cash,” adds Early, who is waiting for more than $50,000. “I don’t know of any dealer out there that doesn’t have an issue of cash flow related to this.” For some minority dealers, temporarily giving up the CARS rebate cash is a deal breaker, says Perry Watson, III, president of the Toyota Lexus Minority Dealer Association.

To ease CARS-induced problems with working capital, the financing wings of Toyota and Honda are providing their dealers something akin to an advance or short-term loan. “They will give you money as a float for those cars to improve the cash flow,” Watson says. His Indiana-based Lexus of Mishawaka (No. 62 on the BE auto dealers list with $26.673 million in sales) has done six CARS deals. Watson thinks it will take at least another 60 to 90 days for CARS paperwork and payments to be resolved. A General Motors Minority Dealers Association newsletter announced Friday that GM was advancing dealers 30-day interest-free loans for clunkers rebates still being processed. Floor-plan lenders, says Gregory Jackson, will “absolutely not” cut dealers any slack because of the government’s slow pay outs. “They won’t even entertain that conversation,” he says.

Given that the government invested money in both the auto industry and in banks, says Jackson, “A better way for the government to have done this was to have those large institutions pay us all our money, and the government reimburse those institutions. It’s a whole lot easier for the bank down the street to fund $1 million worth of receivables that it’s waiting on from the government — particularly since they can borrow from the government overnight — than it is for me to be sitting here with $350,000 or a quarter of a million dollars per store of clunker accounts receivable that I have, trying to fund that until the government pays me, and not knowing if the government will pay me,” Jackson says.