'Cash For Clunkers' Stalls From Lack Of Funding

(WGN-AM)- The government's cash for clunkers program has burned through its $1 billion budget in less than a week as car buyers swarmed dealerships, and federal officials are scrambling to find more money to keep it going, according to government sources.

The program, designed to jump-start car sales and improve the fuel efficiency of the nation's auto fleet, unleashed a wave of pent-up demand that threatened to exhaust funds before dealers could be fully reimbursed for rebates under the plan.

As word got out late Thursday that the program might be suspended at midnight, some car dealers reported a surge in nighttime buyers. At Toyota of Hollywood, general manager Don Mushin said he expected to sell 15 vehicles before closing.

"It's a mad rush right now with people bringing in their clunkers," he said. "The whole place is full."

He also called in extra staff to finish the paperwork on the roughly 50 trade-ins completed since July 24 so the dealership can begin disabling and crushing the clunkers Friday morning and sending in reimbursement requests quickly.

Car sales have been in the tank for more than a year as the nation's deepening recession and growing ranks of unemployed turned the market into the worst one in decades and helped send General Motors Corp. and Chrysler into bankruptcy this year.

The federal program -- dubbed CARS, for Car Allowance Rebate System -- provided rebates of $3,500 or $4,500 to consumers who traded in vehicles with combined city/highway mileage of 18 miles per gallon or less and bought more-fuel-efficient new cars or trucks.

"We are working tonight to assess the situation facing what is obviously an incredibly popular program," the White House said late Thursday. "Auto dealers and consumers should have confidence that all valid CARS transactions that have taken place to date will be honored."

So far the program has paid about $150 million to car dealers and reserved as much as $850 million more for pending applications. That brought the total dangerously close to the plan's funding limit.

Congress could appropriate more funding, but it's unclear whether that will happen. The legislation authorized $4 billion, but the Senate appropriated only $1 billion.

The main House sponsor of the legislation, Rep. Betty Sutton (D- Ohio), was working Thursday night with the White House, Transportation Secretary Ray LaHood and House leaders to find more money for the program, said Nichole Francis Reynolds, her chief of staff.

One potential hurdle arose Thursday night, as Sens. Dianne Feinstein (D-Calif.) and Susan Collins (R- Maine) said they would insist that any additional money for the program come with a condition that newly purchased cars get at least 2 miles more per gallon than the current program standards.

"We believe that any extension of the 'Cash for Clunkers' program must go further in advancing the goals of better fuel efficiency and greater emissions reductions," they said in a joint statement. "We will not support any bill that does not meet these goals."

Dealers and automakers said the plan clearly sparked a level of interest that had been missing in new-car showrooms, which have looked like ghost towns for much of the past year.

Car sales had been so slow, in fact, that many analysts have said that it would be only a matter of time before there would be a sharp rebound in sales. Whether this week's surge would continue after the program ends remains an open question.

"If the government's intention was to provide a catalyst to get consumers off their couches and shopping for cars, then I think we can say that it has been a success," said George Pipas, senior sales analyst for Ford Motor Co.

Ford set up a Web site called Recycle Your Ride, aimed specifically at cash-for-clunkers shoppers, Pipas said, and more than 1 million people visited the site over the past few weeks.

Though the White House is providing reassurances that dealers won't lose money, that could happen based on cash-for-clunkers rules. Dealers are required to give qualifying buyers the $3,500 or $4,500 discounts, and then apply to the government for reimbursement. Dealers who apply for repayment after the funding runs out will not be reimbursed, according to the program's rules.

"There's a big concern among dealers that this thing may run out of money and they don't want to be stuck holding the bag," said Michelle Krebs, senior editor of AutoObserver.com.

To make matters worse, dealers are required to permanently disable the engines of traded-in clunkers before they can apply to the government for repayment, Krebs said. If payment is denied, the dealer is out the $3,500 or $4,500, and has a car with a ruined engine that can't be resold.

"Dealers want to protect their customers and make sure they receive the rebates," said Sackrison of the Orange County dealer group. "We have every confidence that our government will honor their promises. The opportunity to reopen the program or apply for more funds would certainly be welcome."

(The Chicago Tribune contributed to this story)

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