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 Cars.com 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.

While most of the dealerships offering “used” Chevy Volts for sale are Chevy dealers, I also found other manufacturers selling Volts with low mileage as “used” cars. A Kia dealership in California that I contacted seemed to suspect that they were doing something a bit underhanded when I called them to inquire about a “used” Volt for sale with only 30 miles on it. After I identified myself as being an associate with the National Legal and Policy Center, I was placed on hold. I was then told by a sales manager that the Volts offered at that dealership were rental cars with higher mileage on them. I later called the same dealership back posing as a potential customer and confirmed that a “used” Volt with only 30 miles on it was available. This also raises the question of why GM or Chevy dealerships would be selling Volts to other manufacturers’ dealerships when they claim that there are not enough of the cars to meet retail demand.

A Chevy dealer in Chicago was more upfront with the info given on a “used” Chevy Volt with only 10 miles on it. The vehicle was being offered at MSRP. When I asked if I was eligible for the $7500 tax credit, I was told that I probably wasn’t since the dealership was applying for the subsidy. This practice is one of the more egregious abuses to date purloined upon taxpayers as a result of the GM bailout. The intent (even if misguided) of the $7500 tax credit offered on the Chevy Volt is to encourage consumers to buy “green” vehicles, not to offer an opportunity for dealerships to game the system and maximize profits at the expense of the taxpayers. I also suspect many purchasers of “used” Volts will attempt to claim the $7500 tax credit for themselves, thus bringing the total tax subsidy on such transactions to $15,000 if not disallowed by the IRS.

General Motors should act immediately to stop the practice of dealership to dealership sales enabling the pilfering of Chevy Volt tax credits. I would go one step further and say that IRS requirements for taking green vehicle tax credits should be changed to eliminate the credit for businesses. Clarification should also be given on whether companies like General Electric will be allowed to take millions of dollars in taxpayer subsidies when they purchase thousands of Chevy Volts. It certainly would not be unprecedented for Treasury to change IRS code; they have made more complex changes as recently as 2009 to allow GM to benefit from a $45 billion tax loss carry-over credit.

Dealerships taking tax credits that were designed to benefit consumers is unacceptable. The practice should be stopped immediately, regardless of the desire of GM and the Obama Administration to do everything in their power to support the appearance of strong Chevy Volt sales.