Report: Dealers Worried About Getting EV Refunds From the Government

Nobody likes bureaucratic red tape or waiting on payment and this seems to have become a sticking point for retailers nervously waiting to see how the United States’ updated EV tax credit scheme plays out.

According to a report from Automotive News, dealers are getting worked up about the prospect of not receiving money swiftly enough — mimicking some of the hardships endured during the Cash-for-Clunkers period.

From Automotive News:

Starting in 2024, eligible EV buyers will be able to transfer federal tax credits to dealers and use those funds as a down payment. The credit transfer is allowed under the Inflation Reduction Act's Section 30D credit for new EV purchases and Section 25E credit for used EVs, which provide consumers with up to $7,500 and $4,000, respectively, if certain requirements are met.

The U.S. Treasury Department said participating dealers will be able to register via an online IRS portal in the next few months. In January, those dealers will be able to submit EV sales information to the IRS and "promptly receive payments for transferred credits," Lily Batchelder, assistant secretary for tax policy, told reporters this month.

While many of the finer details are still to come, several dealers told Automotive News they are concerned about how seamlessly the process will play out on their showroom floors and how soon they will be reimbursed by the government.

"History would tell us we have a lot to be nervous about," said Tyler Slade, operating partner at Tim Dahle Nissan Southtowne in suburban Salt Lake City.

While applying the credit to a vehicle at the point of sale — or cash on the hood — is the "optimal situation," it puts more burden on the dealerships, Slade said.

"You're going to have plenty of dealers that aren't going to be comfortable with that risk … waiting for the government to pay, much like Cash for Clunkers," he said.

Leading up to the last presidential election, your author actually covered Biden’s desire to reboot the contentious Cash-for-Clunkers (aka the 2009 Car Allowance Rebate System) program implemented under the Obama administration with an electrified twist. While skepticism abounded — mainly because the deal seemed to have advantaged automakers more than regular Americans or the environment — Joe Biden ended up taking the 2020 election and has managed to get several components of the scheme activated through the so-called “ Inflation Reduction Act.”

The most important aspects fell under the updated EV tax credit scheme, which was changed in a manner that effectively made government subsidies a permanent fixture. There was no longer any limit to the length of time the industry could benefit. However, new protocols also dictated that vehicles fall below a certain price threshold, boast a specific quantity of domestic components, and buyers fall within the approved income brackets.

Since some of that isn’t settled yet, dealers are getting anxious. They want clear regulatory frameworks and a way to swiftly be paid for any transferred credits.

"There are horror stories out there that dealers didn't get paid for six months," said Michelle Primm, managing partner at the Ohio-based Cascade Auto Group, recalling the brief Cash-for-Clunkers era.

"Car dealers are asset rich and cash poor. Cash flow is something we look at every single day in a car dealership," she continued. "What if that $200,000 the government owes me is the same time I have a big payroll, and I have floorplan to pay off and, oh, it's tax time? All of a sudden, the dealer is in a cash crunch."

Frankly, it’s hard to have any empathy for automotive dealerships these days. While stores may have had to wait a while during the original Cash-for-Clunkers, the plan resulted in their getting a temporary sales boost. Meanwhile, modern showrooms have been hosing down customers with all manner of markups for a few years now. This was formerly the result of pandemic lockdowns crippling supply chains and stifling production. But it managed to persist after inventories began to stabilize and have become a fixture of the car-buying experience.

It’s unsustainable in the long run, especially considering how ravaged the economy appears to be these days. The average American household can’t even afford the typical new vehicle anymore and manufactures continue raising prices due to inflationary pressures.

Whether or not you hate what dealers are doing today, they could find themselves in a tricky situation if they garner a lot of EV sales. This is especially true for the smaller dealerships that have to operate lean. The industry has already been changing in ways that favors consolidation and the biggest dealer networks keep growing while their more humble competitors fall by the wayside or are bought out.

"A fair repayment time would be within five to seven days," Mike DeSilva, owner New Jersey’s Liberty Auto Group, suggested to Automotive News. "Once it starts to be any longer than that, dealers will be less likely to lay out the money and wait for it. … We don't want to see a repeat of Cash for Clunkers."

But they presumably won’t for some time. Cash for Clunkers was a sweeping program that offered consumers as much as $4,500 to trade in their old vehicle for something more fuel efficient and model and drove up used vehicle prices as secondhand models were crushed in record numbers. Meanwhile, the updated EV tax credit scheme probably won’t see broad eligibility due to just how many vehicles source components (particularly batteries) from Asia.

This means only select brands and models will be impacted by any meaningful degree in the short term. However, the issue could become a problem further down the road as more companies bring battery manufacturing to North America. Still, it sounds like dealers would still rather have the scheme in place to help bolster EV sales that have plateaued in recent months than not. They’re just mad about the extra paperwork and having to deal with a slow-moving government bureaucracy reminiscent of the Cash-for-Clunkers era. 

"The downside, of course, was dealers didn't get paid very fast, and the reimbursement process was a little clunky," said Brian Maas, president of the California New Car Dealers Association. "But all in all, it did move a lot of metal, and that was a good thing, and I think the goal of all these [Inflation Reduction Act] credits is to move EVs."

The National Automobile Dealers Association has likewise been in regular contact with the U.S. Treasury to ensure things go its way.

"NADA's focus has been on communicating to the administration what is going to be really necessary to lead to a successful implementation of the statute, and what we are stressing is the need for all parties to have a workable, repeatable, standard operating procedure and to avoid scenarios that could lead to confusion or ambiguity," NADA spokesperson Jared Allen said in a statement.

Maybe this is an insane pitch. But some of us would probably just like things to return to normal where the government isn’t “helping” so much and only suckers are forced into paying above MSRP.

[Image: Paul Brennan/Shutterstock]

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