Final weekend of clunkers program draws big crowds
EMILY FREDRIX / AP Business Writer
From Vermont to California, exhausted but appreciative car dealers watched their lots grow empty as crowds rushed to trade in gas guzzlers during the final weekend of the popular Cash for Clunkers program.
The hectic pace of the $3 billion rebate program accelerated in the final weekend, after the government announced the program would end at 8 p.m. EDT Monday, two weeks earlier than expected.
Adding to the urgency, some dealers had said they would stop Cash for Clunkers sales even earlier to make sure the government reimbursed them for the rebates — or because they didn’t have enough eligible cars left.
In the final hours, customers streamed in.
“We thought about it a couple weeks ago,” said Annette Palmer, 51, at Town and Country Honda in Berlin, Vt., on Saturday with her husband. They hoped to trade in a 1999 Jeep Grand Cherokee for a Honda CR-V.
“We kind of dragged our feet. Then we heard it was closing and we picked up our feet and ran,” she said.
Though short of some new models, such as the Ford Focus, Honda Civic, Toyota Corolla and Nissan Altima, many dealers were still selling as many cars as they could before Monday night’s deadline.
Standing outside one of his Hyundai dealerships in Appleton, Wis., John Bergstrom said customers traded in 100 clunkers throughout his fleet of 20 dealerships on Saturday and 100 the day before. They were his two biggest sales days during the clunkers program.
“That’s about as good as it gets,” Bergstrom said. “It’s going out with a bang.”
In all, Bergstrom said his dealerships — whose brands include Ford, GM and Toyota — sold 800 cars during the program, boosting sales 30 percent. He had to bring in extra staff to deal with the paperwork, but the sales were worth the hassle, Bergstrom said.
At Universal City Nissan in Los Angeles, Alberto Vasquez said keeping up with the pace of the program has taken a toll on employees. Some labored past midnight to wrap up last-minute deals.
“Are we tired? Definitely,” said Vasquez, the dealership’s director of training. “But it’s also bittersweet, because we’re happy that we’re selling cars.”
The dealership has sold more than 700 vehicles through the program and brought in extra staff to help enter information on the government’s reimbursement Web site.
Cash for Clunkers has been wildly successful in spurring new-car sales and getting gas-guzzling models off the road, though some energy experts have said the pollution reduction is too small to be cost-effective. Customers receive rebates of between $3,500 and $4,500, depending on the improvement in fuel efficiency from their old vehicle to their new one. As of early Friday, nearly half a million cars had been sold through the program.
But the new sales left many dealers worried about not being reimbursed by the government. As of Friday, dealers had been reimbursed for just a small fraction of the billions in sales.
Some dealers chose to stop participating over the weekend so they could have enough time to process and file the paperwork, including AutoNation Inc., the nation’s largest auto dealership chain.
At Toyota Direct in Columbus, Ohio, employees were told to double- and triple-check paperwork so it wouldn’t be rejected for reimbursement, said Jim Collins, the dealership’s assistant general manager.
Sales picked up on Saturday, though the dealership had only 20 new cars eligible for sale under the program. Sales employees sometimes jogged paperwork into the manager’s office to keep up with the pace.
The dealership won’t take any new sales on Monday so it can be assured of reimbursements, Collins said.
“We have quite a bit of paperwork, but is it worth the selling of a car right now? Absolutely,” he said. “We like to sell cars. That’s what we’re in business to do.”
Martin Main Line Honda in the Philadelphia suburb of Ardmore stopped its Cash for Clunkers sales at noon on Saturday. But by late afternoon there were still groups of people wandering the lot.
General sales manager Michael Freeman said the program had been “overwhelming,” with 115 clunker sales and big surges in customer traffic at the start and now at the end. He’s aiming to get the final stack of paperwork filed before Monday’s deadline.
“I have people upstairs, that’s all they’re doing — paperwork,” he said. “The backlog is a nightmare, and it’s starting to be a nightmare at the end.”
Customers were feeling the urgency, too.
In Appleton, Wis., April DeKeyser looked at her new Mazda 3 2010 and still had trouble accepting that it was hers.
The 22-year-old nurse from Brussels, Wis., had wanted to trade in her Chevy S10 truck as soon as the clunkers program began. But she had a hard time finding the car she wanted and had to run to numerous dealers.
DeKeyser said she knew she had to get the rebate this weekend. Without it, she wouldn’t have bought her new car.
“I would have waited,” she said. “Basically, I would have driven the other vehicle until it died.”
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Associated Press writers Alex Veiga in Los Angeles, Andrew Welsh-Huggins in Columbus, Ohio, Ron Todt in Philadelphia and David Gram in Berlin, Vt., contributed to this report.
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Innovative finance strategies for startups
Lawrence Gennari, partner at Choate, Hall & Stewart, LLP
With the stock market entering a modest equilibrium, many emerging growth companies, whether venture-backed or privately funded, are reconsidering financing strategies and looking at their next steps.
Yet, bank financing remains elusive, and many venture capitalists, particularly those previously funding Series A and B rounds, seem to be focused on stabilizing their existing portfolio companies or investing in later stage enterprises. So what’s a technology company to do if it needs financing and hopes to be sold or go public within two years? Consider the following:
Doing more with less. Financings are still getting done, even in this environment. The key is adjusting financing strategy to what is available — and from whom — in the near term. For example, a planned venture round for $7 million may need to be scaled back to a $3 million targeted angel investor offering. Angel investors, both in groups and as individuals, still are reviewing business plans from local companies in compelling industries or with demonstrable near-term financial success, such as achievement of break-even cash flow. Any management team that is formulating plans and presentations for institutional investors should have a parallel plan to reach out to angels.
Milestones matter. Whether the target investor is large or smaller, the questions will be the same. How have you spent existing cash, and how will you apply proceeds from the new financing? Be prepared to demonstrate how past investment led to objective milestones, such as a new upgrade or version of software, registration of unique users, or achievement (or near achievement) of break-even cash flow. For any new offering, you’ll need to show cash outlays that are real, achievable and narrowly tailored to meet near-term milestones. Remember, even if you can’t raise all of the money you ultimately need right now, you’ll position the company for a greater financing valuation later — perhaps in a better or more hospitable economic environment — if you can execute on meaningful milestones this year.
Consider the audience. No financing is “typical” or “standard,” and today, more than ever, investment documents must fit investor objectives. If valuation is stalling discussions, would the investor take convertible debt with a right to participate in future equity rounds at a discount? If future upside protection is the issue, would investors be satisfied with preferred shares carrying an agreed-upon liquidation preference on any future sale? Flexibility and fitting documents to meet stated investor needs is critical — do not draft or present “standard” documents at initial meetings. Angel investor groups will have their own term sheets and documents, while individual angel investors will rely on the company to generate documents later to fit specific discussion points.
Don’t wait to approach investors. How does a promising company with customers, revenue and real prospects find investors, and are any angels still writing checks? The answer is “yes.” Granted, angel investments overall fell in 2008 compared with the year before. Yet the number of deals was relatively unchanged, with 55,480 startup companies raising angel capital, according to the Center for Venture Research at the University of New Hampshire. Most angel investor groups have websites and will respond to online inquiries. The best approach, however, is to approach groups or individual investors through an introduction from someone they trust, which includes fellow investors, an accountant, a lawyer or a banker. The party providing the introduction also might prove to be an important source of information regarding the investor’s preferences, investment appetite and co-investing circle of friends.
Bottom line. Whatever financing strategy you choose, be prepared to think, resize and readjust creatively based on today’s market realities. An innovative and flexible approach is key to raising money now — and for the foreseeable future.
Lawrence Gennari is a partner in the business and technology group at Choate, Hall & Stewart, LLP and an adjunct professor at Boston College Law School. He can be reached at lgennari@choate.com.
We agree with much of Attorney Gennari’s advice on how to prepare for your pitch to a venture capitalist or other private investors. For bandwidth-constrained founders, they are most concerned with the efficacy of finding and attracting the attention of appropriate investors. From this perspective, entrepreneurs and business execs should consider a forum specifically designed with input from the region’s leading private capital investors to offer an effective and efficient venue for identifying, screening, matching and assessing investment suitability of rapidly growing companies. Speed Venture Summit is New England’s premier event for business executives to speed pitch their growth story to private capital investors: in the course of a single day, they meet face-to-face with six different groups of the region’s leading private capital investors. For more information, please visit www.speedventuresummit.org
