How dealers play defense in the clunker game

Duke Brubaker, general sales manager of Champion Ford-Lincoln-Mercury-Mazda in Owensboro, Ky., tried to turn himself in to the feds.

He has sold 42 cars under the cash for clunkers program and, as of last week, had three deals approved -- but none reimbursed. With reimbursement uncertain, he kept the sold cars on his lot as a protection. He told customers he would give them the keys when the government clunker checks arrived.

Brubaker then learned that his maneuver was prohibited by the National Highway Traffic Safety Administration, which oversees the trade-in program. Fearing repercussions, he picked up the phone and called a NHTSA consumer complaint hot line and tried to report himself.

He couldn't get an answer. He left a message, then phoned his customers to tell them to come pick up their new vehicles.

"This whole 'must deliver the car' really gets me upset," Brubaker fumes. "What happens if a customer is dishonest?"

Brubaker isn't alone in his exasperation or in his attempt to protect himself from a clunkers-related financial bath.

Many retailers are frustrated because the program is not following the car-business norm of fast payments and immediate reimbursements. Erroneous information provided by a buyer, such as false claims of ownership and insurance, could end up getting a deal rejected and leaving the dealership out of pocket after the car has left the lot.

The National Automobile Dealers Association has questioned NHTSA's legal authority in rulemaking, and some dealers have continued to hold deliveries despite the NHTSA warning. One defiant Midwestern dealer, who didn't want to be named, said he has delivered only a few of a couple of dozen clunker deals he has made.

Other dealers have turned to contingency agreements.

Nearly 200 dealers said in an Automotive News online survey last week that they are asking customers to sign a contingency agreement before letting cars leave the lot. That safeguard is legal but problematic, since it requires the customer to return the car, or come back and restructure the sell agreement, if the government reimbursement never materializes.

NHTSA's Web site, cars.gov, assures consumers that "you are not required to sign an agreement like this to participate in the CARS Program." It adds: "You may agree to such a term, but your choice to agree is between you and the dealer."

At least two California consumer groups -- Consumer Action in San Francisco and Consumers for Auto Reliability and Safety in Sacramento -- say the agreements take advantage of customers. They have asked federal officials to crack down on the practice.

"We thought about asking customers to sign contingency agreements," says Bob Gault, principal in Gault Chevrolet-Toyota-BMW in Endicott, N.Y. "But I realized that all we were going to do was irritate our customers. It was a customer-service thing. So I decided the government's good for the money. Let the deliveries roll."

A third method of protection has been asking clunker customers to write a check.

Ron Morehead Jr., general manager of Honda of Kingston in Kingston, N.Y., had begun asking customers to write checks to cover the $3,500 or $4,500 clunker program rebate. Morehead would deposit the checks, telling the customers that they would be paid back when the government reimbursement arrived.

"We don't let cars go without getting funded," Morehead says.

Then Morehead took what may be the ultimate step to protect himself from the program: He dropped out.