Cash for Clunkers: Cash gone

by Martin Zimmerman and Tiffany Hsu and Jim Puzzanghera

With surprising swiftness, 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 were scrambling late Thursday night to find more money to keep it going.

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 Thursday that the program might be suspended at midnight, some car dealers reported a surge in nighttime buyers. But government officials later said the program -- dubbed CARS for Car Allowance Rebate System -- was not going to be suspended overnight.

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

Buyers rushed to dealerships before the money ran out. At Toyota of Hollywood, general manager Don Mushin said he expected to sell 15 vehicles before closing Thursday.

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

See the full report on cash for clunkers in the Los Angeles Times.

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 filing for bankruptcy protection this year.

The federal program 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.

The program was designed to run until Nov. 1 or until 250,000 cars had been sold, whichever came first. Many analysts had expected the money to last at least until Labor Day.

So far the program has paid about $150 million to car dealers and reserved as much as $850 million more for pending applications, according to congressional aides. 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. Lawmakers authorized $4 billion but appropriated only $1 billion for the program.

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.

"It's amazing and it's improving our environment, it's improving the economy and we look forward to continuing this great program," Reynolds said, noting that there was "overwhelming support" for it but that finding a source for additional funds would be challenging.

Rushing funding bills through Congress can be difficult, even for a popular program. Knowing that the legislation has strong support, lawmakers often try to add controversial amendments.

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 cash for clunkers 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," the senators said in a joint statement. "We will not support any bill that does not meet these goals."

Dealers are hoping that more money is found for the program.

"I hope they will extend the program because it was such a win on so many levels -- for the consumers, for the environment, for all the car manufacturers," said John Sackrison, executive director of the Orange County Automobile Dealers Assn. "It got a lot of people to go car shopping who wouldn't have otherwise."

And people who didn't move fast enough to close a deal in the first six days of the program also hope that the government can come up with more money.

"We were trying to get in before all the money ran out, but clearly we were late this time," said Ashlee Gadd, 23, of West Sacramento, who with her husband had planned to shop Sunday for a car. "We won't be waiting. We'll be the first people on the first day to make sure we can get in and finally take advantage."

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 last 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 will 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's been a success," said George Pipas, senior sales analyst for Ford Motor Co.

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

Although the White House is providing reassurances that dealers won't lose money, that could happen based on the 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 clunker trade-ins before they can apply to the government for repayment, Krebs said. If payment is denied, the dealer is out the advanced discount 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 dealers group. "We have every confidence that our government will honor their promises."

Although undeniably popular, cash for clunkers has had glitches. Dealers could begin selling cars under the program July 1, but most waited until the rules were published July 24 before pushing clunker sales in earnest.

As consumers and dealers jumped in, the government's computers reportedly froze up. There also were complaints about the complexity of the qualification guidelines.

"Dealers have had a lot more showroom traffic than they've had in a long, long time," Krebs said. "But the program has created a lot of confusion and a lot of frustration."

At Hollywood Ford, festooned with cash for clunkers banners and posters, Eric Choi, the dealership's Internet sales manager, said employees were scrambling to finish paperwork on last-minute deals that the dealership chose to honor late in the day -- the dealership's busiest cash for clunkers day.

"Hopefully the government doesn't run out of money," he said. "Even if there's a 1% chance we won't get paid back, it's a lot of money."