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Consumer Groups Question Some Clunkers Deals

— Consumer advocacy groups are calling on the Department of Transportation to crack down on dealerships offering questionable sales terms to customers participating in the government's Cash for Clunkers program.

Junk cars are seen stacked at Deal Auto Wrecking July 31, 2009 in Richmond, California. Federal lawmakers are seeking an additional $2 billion to keep the popular 'Cash For Clunkers' program going after the initial $1 billion in funding ran out after a week.
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Above: Junk cars are seen stacked at Deal Auto Wrecking July 31, 2009 in Richmond, California. Federal lawmakers are seeking an additional $2 billion to keep the popular 'Cash For Clunkers' program going after the initial $1 billion in funding ran out after a week.

The groups complained that some dealerships have pressured customers to sign agreements forcing them to repay their Clunkers rebate if the dealership isn't reimbursed for the sale. The DOT says car buyers are not required to sign the so-called contingency forms to qualify for a Clunkers transaction, but the groups said the waiver should be banned altogether.

"It involves dealers attempting to shift the risk from themselves to consumers if the Cash for Clunker deals don't go through," said Rosemary Shahan, president of Sacramento-based Consumers for Auto Reliability and Safety. "We believe it is a form of bait and switch."

The program allows car buyers to receive a rebate of either $3,500 or $4,500 if they trade in old vehicles that get 18 mpg or less and replace it with a new, more fuel-efficient car or truck. The program has been a hit with consumers and automakers. President Barack Obama earlier this month signed a bill adding $2 billion more in funding.

But the program's execution has had some problems. For example, dealers - who must pay for the rebates out of pocket and then wait to get reimbursed by the government - have complained it can take days or weeks to get their claims processed, leaving them worried about getting repaid.

"While problems with application submissions for the clunkers program have been significantly reduced, getting approval for dealer reimbursement requests is still facing significant hurdles, said John Lyboldt, a National Association of Automobile Dealers vice president, in a statement.

Dealerships have said they asked customers to sign the waivers as a form of self-protection. Bailey Wood, an NADA spokesman, said waivers are a way of protecting dealers from being stuck with rebates they offered but can't get reimbursed.

"Dealers are out hundreds of thousands and in some cases millions of dollars in back Cash-for-Clunkers transactions," Wood said. "It's getting to the point that some dealers can't afford to participate in the program."

Wood said one chain of dealerships in the Washington area is waiting to get paid for $3.8 million in Clunker rebates. Another dealer in South Carolina has ordered his sales staff to stop offering Clunker deals altogether until he starts to get paid for some transactions, he said.

The program is administered by the DOT. A DOT spokeswoman did not immediately comment.

One contingency form, drafted by the Minnesota Auto Dealers Association, states that "if for any reason" it is not reimbursed for a Clunkers transaction, the customer must "pay the dealership the (Clunker) incentive amount in cash or return the new vehicle to the dealership."

Gloria Sharp, of Woodbury, Minn., said she traded an old Jeep Grand Cherokee for a Honda Accord through the program at a Minnesota dealership last month. She signed a contingency form, not knowing she wasn't required to. Later, the dealership called to tell her she wasn't eligible for the program after all and demanded she repay the $4,500.

Eventually, she worked out the source of the problem with the dealer and was able to keep the Accord. But the process left her worried about how other customers are being treated, she said.

"Essentially, the consumer is on the hook for all of this," she said. "That's what the scary part is."

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Associated Press Writer Stephen Manning contributed to this report from Washington.

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