By on June 1, 2011

Mark Modica, a former Saturn dealer GM bondholder, has leveraged his financial loss at the hands of the government bailout into a blogging position at the National Legal and Policy Center, a conservative nonprofit that “promotes ethics in public life through research, investigation, education and legal action.” At the NLPC, Modica focuses on what he believes to be corruption surrounding the auto bailout, and has written a series of anti-GM posts that make TTAC look like a Detroit hometown newspaper (TTAC “bias police,” take note). Most recently, Modica has caught the attention of the auto media, including Automobile Magazine and Jalopnik, with a series of posts accusing Chevy dealers of “scamming” taxpayers by claiming the Volt’s $7,500 tax credit and then selling Volts as used cars. TTAC welcomes anyone seeking to cast more light on the bailout, but unfortunately, Modica’s attacks are too focused on making GM look bad and not focused enough on providing relevant information to the American people. Let’s take a look and see why…

In the piece that set off the current flap, Modica wrote

I recently set out to determine how honest General Motors is being when it claims that demand for the Chevy Volt is exceeding supply. It was not hard to discover that this is not the case as retail sales remain dismal. A web search on vehicle locator sites such as Autotrader and exhibit sufficient supply of the Volt, one dealership within 70 miles of my location had six new Volts available for sale.

Even Ebay lists vehicles, many had no bids and one listing in Texas hadn’t even met reserve with only one day of bidding time remaining. But I discovered something far more disturbing during my search. Many Volts with practically no miles on them are being sold as “used” vehicles, enabling the dealerships to benefit from the $7,500 credit supplied by the American taxpayers on each car. The process of titling the Volts technically makes the dealerships the first owners of the vehicles, which gives them the ability to claim the subsidies.  The cars are then offered to retail customers as “used” vehicles.

The practice of dealerships purchasing from one another is not uncommon. “Dealer trades” are done all the time in the industry. What is very unusual is for the receiving dealership to be able to maximize profits at the expense of taxpayers by claiming tax credits of $7,500. It is also very rare for dealerships to part with any model that has higher demand than supply, as GM claims is the case with the Volt. In addition to qualifying dealerships for a $7,500 tax subsidy, the titling process also allows GM to record Volt sales even if the cars are sitting on dealership lots.

Modica’s attack is hamstrung from the start because his goal is to demonstrate that supply of the Volt exceeds demand. The simple truth is that the government’s tax credit, in combination with strong early-adopter demand and low production volumes, basically guarantees that Volt demand will outstrip demand in the short term. If Modica wants to prove that the market won’t support the Volt’s high price and complexity, he’s going to have to wait until production ramps up and the early adopters have satiated their “gotta have it” instincts.

Because he doesn’t appear to have the patience to watch the Volt fail on its own terms (which, it must be added, is not a foregone conclusion, depending on how GM handles production), Modica has to look twice as hard for potentially damning evidence. Since the availability of used Volts alone doesn’t say much about the supply-demand balance, Modica manufactures another “scandal”: that Chevy dealers are taking the $7,500 tax credit that the government intends for consumers, and then selling Volts as used cars with no tax credit.

This “scandal” quickly falls apart under the weight of its over-ambitious pretensions: after all, if demand for Volts is as weak as Modica wants to believe, surely absorbing the tax credit at the dealer level is a recipe for Volts languishing on dealer lots. Since Modica offers no evidence for high dealer inventory, his major thrust (proving that demand for the Volt is weak) falls apart. Furthermore, without a single case of a dealership claiming the tax credit and then selling a Volt to a customer under the pretense that it still qualifies for the tax credit, his research ends up well short of proving a “scandal.” As a result, Modica is left having to argue against dealers taking the credit on principle.

And here’s the tragedy: Modica is so focused on landing a political-economic “scandal,” he ignores the legitimate criticisms of both GM’s Volt-dealer policies and the government’s tax credit. Had he been less interested in the political side of things, Modica would have noted that GM’s hands-off approach to Volt dealers has led to dealers gouging early adopters. Sure, that storyline would have proven that short-term demand for the Volt was strong, but then Modica could have pointed to the contrasting situation at Nissan, where Leaf sales are pre-arranged online, cutting dealer markups out of the loop. This strategy also keeps Nissan dealers from taking the tax credit (at least in theory), and will prevent any “gouging fatigue” that could hurt Volt demand down the road.

From the other side of this issue, if Modica had been more interested in the politics of plug-in tax credits, he would have realized that manufacturing a poorly-proven “scam” was wholly unnecessary. As TTAC reported back in February, taxpayers have already lost some $7m worth of plug-in tax credits to fraud. In short, the Treasury Inspector General for Tax Administration has already proven that $33m of tax credits were claimed erroneously by everyone from prisoners to IRS employees ($7m of which is unrecoverable), offering Modica a well-documented scandal that has been undercovered in the mainstream media.

When industry and politics collide, the public deserves strong, independent information gathering and analysis to protect against inevitable abuses. But those who wish to take up that mantle have a responsibility to own up to their motivations: are they looking for legitimate issues regardless of their political or economic consequences, or do they set out with predetermined conclusions and gather up just enough information to support them? Unfortunately, Modica’s history and recent work seem to place him in the former category. Exploring the interaction between the US Government and the auto industry that it now interacts with more than ever, requires the ability to spot scandals without having to manufacture them. And the more you cover the inevitably tortured relationship between private business and public government, the more you realize that there are very few big scandals anyway… after all, free markets and fair governments almost always die the death of a thousand cuts rather than being taken down by a cartoonish scandal.

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34 Comments on ““Volt Scam” Debate Misses The Point...”

  • avatar

    “Real world” info Mr. Modica. Chevy store in NY metro area. Allocated 10 2011 Volts. All sold. You want a Volt? I have an ibound 2011 Volt in white. Be here in August.

  • avatar

    “do they set out with predetermined conclusions and gather up just enough information to support them?”

    Of course, that’s his whole job description. He works for a “think tank.” The problem is that the mass media, ever hungry for a controversy, doesn’t do the responsible thing and just ignore this sort of nonsense.

  • avatar

    I think it might be a great story for GM if the Volts are selling well without the tax credit going to the end buyer. If I were GM, I’d put that in as many investor presentations as I could. If it were widespread, or even true, that is.

  • avatar

    Mark Modica, a former Saturn dealer GM bondholder, has leveraged his financial loss at the hands of the government bailout…

    I have to ask: how well does Mr. Modica think he would have done, as a dealer and a bondholder, had the government not intervened?

    GM management deserves no small amount of criticism, and the Volt is, at best, iffy, expensive and of limited appeal, but I have real trouble with someone who had his investment and business losses partly socialized complaining about how he indeed should have been completely insured against failure.

    Or at least a little gratitude would be nice…

    If you’re a conservative then I’d like to see some evidence that you’re sticking to principles. If you’re picking and choosing ideology as it fits you, then you’re a pragmatist: have the guts to call yourself such.

    • 0 avatar

      In a legal bankruptcy, creditors are paid first. As a bondholder, Mr. Modica had 200 years of business law determining he would be paid before anyone else. Equity holders(owners) would be paid next. Instead, Obama and company put the UAW at the front of the line, even though they were entitled to almost nothing if we were still a nation of laws instead of one big organized crime ring. You obviously know less than nothing about business laws and bankruptcies and I can’t imaging what makes you think your opinions are worth documenting on this subject.

      • 0 avatar

        In a legal bankruptcy, creditors are paid first

        As we discussed ad infinitum, there were a lot of people in line for a piece of GM’s hide, and many of them were before the bondholders.

        The big one, by the way, was the government, who was a secured creditor. Do you know why the government was a secured creditor? Because GM asked them for a loan, and it would have been criminally stupid (and universally reviled by conservatives) had that loan been unconditional.

        There was no money for the bondholders. None. Zip. Zero. Nada. That the government gave them anything was a bonus; they took a haircut, but what they had coming—since they were stupid, ignorant or speculative enough to hold bonds in GM when it was blindingly obvious they were net-asset-negative and there was a credit crunch going on—was a decapitation.

        So the government had the legal right to sell the company to anyone they wanted, and since it was 2008 and GM was worthless, all there was to give was equity, and the only organization willing to take equity was the UAW.

        Why do you guys continually refuse to understand this? Government was a secured creditor. Banks and suppliers (if they negotiated such, and they assuredly did with a company like GM) were secured creditors. They were in front of the bondholders in the line. And GM itself, not the government, put itself in that position.

        I don’t mind the “Was it worth it?” discussion because it’s fair debate fodder, but this bondholder nonsense was proven years ago, and a resounding absence of civil suits in the aftermath only drives that point home further. It’s as ridiculous as Truther- Birther-ism: blind partisanship silliness at the expense of rational fact.

      • 0 avatar

        @psarhjinian: “So the government had the legal right to sell the company to anyone they wanted, and since it was 2008 and GM was worthless, all there was to give was equity, and the only organization willing to take equity was the UAW.”

        It’s funny to see you writing a fiction on a car website…

        1) Show us the for sale ad.

        2) Do you honestly understand the difference between C7 and C11? If you do, please state how they treat debt differently.

      • 0 avatar

        psarhjinian: So the government had the legal right to sell the company to anyone they wanted, and since it was 2008 and GM was worthless, all there was to give was equity, and the only organization willing to take equity was the UAW.

        This assumes that all of GM’s factories, brands and other assets had no value, and that no one therefore would have bought any of these assets. We do not know this as, GM was NEVER offered for sale during any portion of these proceedings. GM went to the government, begging for a loan, in late 2008, when it became apparent that the company was going to run out of cash in a few months. From then on, the dominating question was how to “save” GM, not whether it should be allowed to use standard bankruptcy procedures.

        The simple truth is that the government never used the standard bankruptcy procedure because of two big reasons:

        1. It believed Rick Wagoner’s mantra that no one would consider buying a brand-new vehicle from a bankrupt company. Never mind that a bankruptcy proceeding would have resulted in a reorganization of GM, not a liquidation.

        2. Said reorganization would have resulted in the UAW contracts being extensively renegotiated (with real, not just cosmetic, changes), even more factory closures and considerably more dealer and brand consolidation (possibly sending GMC to the boneyard, too). This, of course, would have sent the UAW into a tizzy.

        Even more importantly, a thorough reorganization would been much more likely to bring about real culture change among GM management. Instead, we got Rick Wagoner’s head on a platter, and not much else, beyond a succession of leaders who aren’t exactly inspiring confidence in anyone. Without the salary caps imposed by government, GM probably could have attracted much better executive talent than it currently has been able to do. It also would have put some real fear into the union.

        Instead, we got a quickie makeover that was driven largely by the need to make sure that the oxes of politically connected organizations were not gored, and hasn’t really changed anything at GM or the UAW.

    • 0 avatar

      psarhjinian “I have to ask: how well does Mr. Modica think he would have done, as a dealer and a bondholder, had the government not intervened?”

      Better than a UAW parasite.

      • 0 avatar

        do you really have to use the word “parasite” to describe a fellow human being. I thought you and others were all for the sanctity of human life and family values. Fine to criticise Unions and/or their members but parasites, really?

      • 0 avatar

        I’m not seeing where he said UAW member parasite, rather he refers to the organization as a whole, which is a far cry from a warm, loving human being deserving of our sympathy.

        The UAW organization parasitic nature has been discussed at length so maybe the term applies.

      • 0 avatar

        He says “a ” Uaw Parasite – which refers to an individual. In any case – to refer to the UAW as a parasite is an absurdity regardless of how long it’s been discussed. The cause of GMs bankruptcy is clearly seen in their automobile strategy decisions and their credit branch that failed to fleece low income buyers at a sustainable rate.

        Unless you really believe the union should have taken the brunt for this macabre dance of management stupidity – and you believe a living wage is due to your fellow country men for hard work – then it is hard to see how the UAW is a parasite. I

        Indeed the UAW has made many concessions in order to see the companies (also ford and chrysler) through this tough situation. It will be interesting to see how management thanks them as the profit situation improves. My guess is a rough *ss f***ing without a reach around.

  • avatar

    All I can say is that he was a Saturn dealer and still held GM bonds to the bitter end? No wonder he’s at a think tank now, he has no business sense.

  • avatar

    On the surface, my conclusion is: The former Saturn dealer had his ox gored, and he wants everyone to pay, pay, pay.

    Too often individuals like this turn their loss into a crusade and wind up merely tilting at windmills and making a fool of themselves.

    A local Chevy dealer lost its new car franchise. They sell used cars now and service everything and they have recently purchased a small local used car dealer in my community. They have not aired their laundry, “dirty” or not in the local news, but have been doing what they have to do under the circumstances.

  • avatar

    This guy is terrible. Using eBay listings as evidence… just awesome.

    I don’t think that GM is having any problems selling the Volt now. But, here is an interesting question. If dealers were buying the Volt, and then selling it as used as he claims, are they still selling it for 41k? What if the goal was to have the dealer claim it so that the end user wouldn’t have to wait till tax time to get the return. I don’t know, it is interesting though.

    IMHO, the tax break should be structured like cash for clunkers. It should come off the price of the car at the time of the sale. It would help prevent people from buying vehicles that aren’t plugins and then trying to claim them as such.

    EN, any word on how bad the corruption was when people were buying hybrids and getting tax breaks for it? I assume if people are doing this now for plugins, they were doing this a few years ago with other cars that didn’t qualify.

  • avatar

    I had done a search on Auto Trader a couple of weeks ago and it turned up less than 500 Volts for sale nationwide – with sales running at about 500 units a month and climbing, well you do the math on inventory turn.

    Completely agree in that trying to create a story the real story is missed, but come on, the media and more recently bloggers have been doing this for decades now.

    The grim warnings of the movie Network and the rantings of Howard Beale are not lost on me.

    As Ed points out, anyone pounding the drum that the Volt is a failure based on a limited city and limited production rollout that is still on going is beating on the wrong drum…for now. And also as noted the Volt failure is not a sure bet, it’s real short coming is production cost and price point. It has some additional quirks but actually isn’t a bad car. Bang for the buck buying a Cruze Eco and loading it out with a manual is going to be your best bet for the money in a Chevy showroom. BUT, if the Volt gets the person in the showroom and they drive off in a Cruze – isn’t that a win?

    • 0 avatar

      Volt sales climbing? Not that I’ve noticed. And while it’s only available in about 1/3 the country (by population), the hard-core fanatics have been crossing state lines to get Volts. When availability is expanded, it’s anyone’s guess whether or not sales will increase significantly.

      The problems are, as you point out, production cost and price point. It’s a $41K compact car that only seats 4 and hasn’t much cargo space. It’s one car for the price of two.

      I don’t see a lot of improvement on the horizon on production cost, either. GM can probably hit the interior with the cheap stick a few times and save a $K or two (embedding some more fixed development costs in it at the same time) but the cost driver is the big pile of Li-Ion cells underneath and price improvement is unlikely to be much better than 10% per year.

      GM is paying dearly to fulfill Lutz’ wet dream and “leapfrog” Toyota with a halo hybrid or EV. GM would have been better off licensing HSD for some variation on the Delta platform (something imaginative, like a mini-minivan). Or just by building the Cruze and letting EVs and hybrids wait until they could build something more reasonably priced. I’m certainly not in the running to be president of the GM fan club but I don’t mind pointing out that the Cruze is attractive and is selling well. GM doesn’t need a halo to pull people into the showroom to sell Cruzes, the Cruze pulls people in all on its own.

  • avatar

    How many states is the Volt available for retail at the moment, five if I’m not mistaken. Let’s say I’m a retail dealer in a non-launch state and I purchase a Volt from a launch dealer. The launch dealer will retain the registration with GM (warranty starts). Now as the non-launch dealer I own a used Volt, the tax credit is mine. Now I retail the Volt as used in a non-launch state. The scandal arises when the consumer purchases the product expecting the tax credit. Shame on GM for not offering the vehicle at all retail outlets. One per dealer at launch. Because GM wanted high visibility states ( California, New York, Florida…..etc)this sort of thing happens.

    • 0 avatar

      Not a problem if the dealer sells it for $7500 dollars off. But, I am not sure that anyone has proof of something like this happening either way.

      EDIT: Just watched the video. His evidence is that a KIA dealer bought one is trying to sell it at MSRP. Yep, that is a GM problem.

  • avatar

    A search on eBay reveals a grand total of…

    two Volts for sale.


    And one of them the dealer doesn’t even have on the lot. He is selling the Volt that is slated for mid-June delivery – both dealers are selling at MSRP asking price.

    Both are being sold as “new,” not used. One in NY and one in TX.

    Yup…real scam going on.

  • avatar
    SVX pearlie

    Credit given where credit is due.

    Good article, Ed.

  • avatar

    Please refer to page 170 of the GM December 31, 2010 10-K, the section on revenue recgonition. Vehicles are sold “generally when a vehicle is realeased to the carrier responsible for transporting it to a dealer.” Therefore one dealer selling to another dealer has nothing to do with GM considering a vehicle sold. Modica should know that being a dealer, but I guess he won’t let facts get in the way of his story.

    And before you complain, all the auto makers report revenue when cars go to a dealer, not when John Q. Public buys them.

    • 0 avatar

      One dealer does not sell a Volt to another dealer without keeping the Retail registration. In other words the dealer electronically registers the vehicle with GM using the other dealers name and address. Not a dealer transfer, but an actual retail sale.

  • avatar

    Anyone else a little suspicious of the idea of dealers spending 40g to get 7500 in tax refunds, if they think the product will sit on the lot? Seems penny wise, pound foolish.

  • avatar

    I just watched the video, and this is probably the dumbest thing I have heard of. 6 Volts within 70 miles is too much supply. I have 16 ZR1 Corvettes within 75 miles of me (DFW area). What is his point?

    His evidence on a dealer selling a used Volt @ MSRP was a KIA dealership.

    This is ridiculous. Mr Modica is just angry he lost his dealership.

  • avatar

    While I have no doubt the Volt is a bad idea (too expensive, too compromised), Modica’s “reporting” involves numbers like “many” and “a bunch.”

    If he’d like to get some real numbers and compare them to launches of other vehicles, he might have an actual news article, instead of a hit piece.

  • avatar

    How about we ditch the tax credit entirely and let these fantastic cars with huge demand just sell themselves?

  • avatar

    GM responded by saying that the two dealers who have been identified as taking advantage of the tax credit are not authorized to sell new Volts. One is a Kia dealership and the other is a Chevy dealer in a region that outside the launch areas. I’m not naive, those dealers probably bought their Volts from another dealer in the same business group, but technically GM is right that they have no control over this.

    I don’t know much about economics but it seems to me that this behavior, the car dealers trying to keep the tax credit for themselves, is a great example of how government action beyond making sure that contracts are enforced and fraud does not take place, particularly in the area of taxes and subsidies, can distort a market.

  • avatar

    Yes, but leaving Modica’s obvious agenda aside, the NY Times quotes an Atlanta dealer admitting bluntly that he sent two employees up to a NY dealer to pose as genuine retail buyers and buy two Volts which were titled in their names long enough to get the tax credit, then to be transferred to the dealer and sold as used. I hope there isn’t any doubt that is unethical. As they say, it doesn’t meet the “smell test.”

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