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Clunker Deals Sting Consumers

Shady tactics shift financial risk to buyers

Some car dealers are using threats, bait-and-switch tactics and other unauthorized maneuvers on car buyers in the popular Cash for Clunkers program, two consumer advocacy groups charged Thursday.

“Dealers are attempting to shift the risk from themselves to consumers if their cash-for-clunker deal doesn’t go through,” said Rosemary Shahan of Consumers for Auto Reliability and Safety. Both that group and another nonprofit, Consumer Action, said they have received dozens of complaints from car shoppers in the past week.

One ploy: Some dealers are requiring buyers to sign “liability waivers” that hold them, not dealers, responsible for the $3,500 or $4,500 incentives should their gas-guzzling trades not qualify for the popular taxpayer-funded program, or if dealers make errors in paperwork or in qualifying the trade-ins.

Some dealer trade associations have posted forms on their Web sites that hold buyers responsible for the incentives if dealers are not reimbursed by Uncle Sam, Shahan said. “And when consumers are hesitant to sign such waivers, in some cases they are told they could face possible criminal prosecution because their (new) car would be reported as stolen.”

In reality, such agreements are not required under the Car Allowance Rebate System (CARS), the official name of the Cash for Clunkers program. Dealers are supposed to subtract the qualifying amount from the negotiated purchase price of a new vehicle and be reimbursed later by the government.

Buyers tell of dealer tactics

But many buyers say the system didn’t work that way for them:

• Gloria Sharp of Woodbury, Minn., said she struck a deal to trade in her clunker and signed over the title—and only then was asked to sign a liability waiver. Days later, the dealer told her that her application had been rejected and said if she did not pay $4,500 she would lose her new car. The dealership had mistakenly applied for that amount, although her trade-in car’s mileage only qualified for a $3,500 rebate.

• Peter Giacalone of Cherry Hill, N.J., said his dealer demanded an upfront payment of his qualifying $3,500 trade-in amount. “I was told I would be reimbursed when and if the dealer got the money from the government.” He walked away from the deal.

• Anna Causey of Summerville, S.C., said her dealer first approved a trade-in of her clunker for a $3,500 incentive, then informed her that the trade-in didn’t qualify after all. “They said they would take $1,000 off the purchase price and I could finance the rest.” When she balked, she said she was threatened with arrest for “breach of trust” by the dealership.

In a letter to Transportation Secretary Ray LaHood, both consumer groups, along with the Center for Auto Safety, urged the U.S. Department of Transportation to do more to protect car buyers using the program.

Consumers warned

The department has posted a notice on the CARS Web site advising buyers that they are not required to sign contingency agreements to pay back the dealer should the car’s credit be rejected. It says that “if the dealer has the new car in stock, the dealer must allow you to take possession of the new car before the dealer may submit the credit application to the government.”

The notice asks buyers to report any dealer who does not allow you to take possession of a new car purchased under the CARS program. To make a report, call the CARS hotline at 1-800-424-9071.

Since starting last month, more than 358,000 new cars have been sold through Cash for Clunkers, and $1.5 billion in dealer-submitted incentive requests have been submitted, according to the National Highway Traffic Safety Administration, which manages the program. On Aug. 7, President Obama signed a law providing an additional $2 billion to extend the program until Labor Day, after the program’s first $1 billion ran out in about a week because of its unexpected popularity.

Dealers complain

Car dealers are required to ensure that trade-ins qualify for Cash for Clunkers, but some dealers have complained about high rejection rates and problems with the Web site they use to file for incentive reimbursements.

“While problems with application submissions have been significantly reduced, getting approval for dealer reimbursement requests is still facing significant hurdles,” said John Lyboldt of the National Automobile Dealers Association in a prepared statement. “NADA is currently working with Transportation Department officials to streamline the process and help dealers get paid in a timely fashion.”

Sid Kirchheimer writes about consumer and health issues.

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