ShareHave more to add? News tip? Tell us
Manufacturers regularly audit their new car dealers across America. You may never have wondered how that super-sized rebate you got on your last new vehicle purchase worked, but the system is a bit more complex than you might think.
Let’s say you bought a $22,000 car with a $20,000 invoice, and the rebate you got came to $3,000. In this hypothetical case you purchased that car for $20,600, less the $3,000 rebate, or $17,600. You got your savings on the new car immediately. The dealer’s financial statement will show that he sold the car for less than it cost him from the factory ($17,600 vs. $20,000) and his only profit will come when he’s reimbursed for the incentive. He’ll post that rebate to his accounts receivable, which means "someone owes me." So, for his gross profit on the transaction, the dealer actually has a negative cash flow on the new car deal until the reimbursement for your incentive comes in from the manufacturer. A very few dealers try to take advantage of this accounting method to get their hands on cash rebates they haven’t earned, either by posting false sales or by putting in for more rebate than is allotted for the particular vehicle sold. So manufacturers often send in audit teams to go over every last car sale, ensure its legitimacy and verify that the incentive paid to the dealer was the correct amount for the car. And these audit crews are often in the largest dealerships for up to two weeks, simply trying to make sure one dealer’s reimbursement payments match their sales.My point is that it often takes weeks to determine information as simple as incentive reimbursement to a new car dealer. So how on earth could Washington’s task force on Detroit divine the extremely complex problems plaguing both General Motors and Chrysler, come up with a plan to save Detroit, and be ready to institute it in what we now know was only 60 days? That’s TellingMore troubling is the fact that the task force members weren’t even former auto industry executives. Brian Deese, an advisor to Larry Summers, is only 31 years old; how much seasoning, history or experience could he bring to the task?Yes, time pressure on these decisions was enormous. And certainly there’s been a huge debate on whether to save Detroit or not — at least with the public. There was never a debate inside the industry or in Washington, because everyone knew that if GM failed the consequences would be devastating to the already critical economic landscape. However, some facts are known about the private meetings between the President and his Auto Task Force, among them that from Day One they seemed focused on forcing GM and Chrysler into bankruptcy. That’s amazing, considering that Washington believed the exact opposite about how failed Wall Street firms should be handled. GM even enlisted Stuart Eizenstat in its bailout battle, and that former White House advisor told CEO Rick Wagoner that Detroit probably would be rescued. After all, they were asking for way less money than AIG had already received, and Wall Street banks had gotten hundreds of billions without any hearings, in Congress or the White House.
@Nyx.CommentBody@