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US puts brakes on ‘cash for clunkers’ before it starts running on fumes

Popular rebate plan will end on Monday

The government said its cash for clunkers program had spurred 475,000 auto sales as of yesterday. The government said its cash for clunkers program had spurred 475,000 auto sales as of yesterday. (George Frey/Bloomberg News)
By Ken Thomas and Stephen Manning
Associated Press / August 21, 2009

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WASHINGTON - The Obama administration will end the popular $3 billion cash for clunkers program on Monday, giving car shoppers a few more days to take advantage of big government incentives.

The Transportation Department said yesterday that the government will wind down the program at 8 p.m. Monday. Under the Cash Allowance Rebate System, car buyers can receive rebates of $3,500 or $4,500 for trading in older vehicles for new, more fuel-efficient models.

Transportation Secretary Ray LaHood said the program has been “a lifeline to the automobile industry, jump-starting a major sector of the economy and putting people back to work.’’ He said the department was “working toward an orderly wind-down.’’

The White House has hailed the program’s success in providing a targeted boost to the sluggish economy since its inception in late July. Through yesterday, auto dealers had made deals worth $1.9 billion, and the incentives had generated more than 457,000 vehicle sales.

But the administration needed to put a halt to the program to avoid surpassing the $3 billion funding level. Consumers were on pace to exhaust the program’s coffers in early September, and dealers have complained about long delays in getting reimbursed for the car incentives.

John McEleney, chairman of the National Automobile Dealers Association, said he remained concerned that so few dealers had been reimbursed for clunker deals. But he said the Monday deadline should give dealers time to get their paperwork in order.

“I think if we can get a clean cutoff Monday and get everything processed by then, it will have been a pretty darned successful program,’’ he said.

But Mike Mahalak, who runs a Dodge, Chrysler, and Jeep dealership in Winter Haven, Fla., said the Monday end date could lead to a similar rush that nearly crippled the federal government’s computer systems that were set up to handle claims.

“That website will lock up again once everyone is cramming it again on Monday,’’ Mahalak said. The administration has said it expanded the capacity of the computer network in an effort to improve the process for dealers.

The Transportation Department said it has reviewed nearly 40 percent of the transactions and has already paid out $145 million. Obama administration officials said there are no plans to seek additional funding.

Applications for rebates will not be accepted after Monday, administration officials said, and dealers should not make additional sales without receiving all the necessary paperwork from customers. Dealers will be able to resubmit rejected applications after the deadline.

The Transportation Department cautioned dealers about making sales this weekend, advising them to make sales only when the buyer’s paperwork is clearly in order and can be submitted immediately.

President Obama said yesterday that the program has been “successful beyond anybody’s imagination’’ but dealers were overwhelmed by the response of consumers. He pledged that dealers “will get their money.’’

Dealers have complained of delays in getting reimbursed and backlogs of vehicle paperwork getting processed in the program. Dealers have said they face a risk of not being reimbursed, but LaHood has pledged that dealers will be paid.

“We do not know how many deals are in the pipeline. We don’t know how many dollars are left in the program at this very moment,’’ said Ted Smith, president of the Florida Automobile Dealers Association. “That’s fundamental to the health of the dealerships that are participating. If you run out of money before you run out of deals, that’s not a good situation.’’

Chrysler and General Motors said yesterday that they would begin providing cash advances to dealers to help cover any cash shortfalls related to the program. The automakers said they would provide the advances for up to 30 days to dealers who have completed a sale and that they will be available as long as the program remains in effect.

The National Automobile Dealers Association said it met with Transportation officials to discuss concerns about reimbursement delays and ways of fixing the problems. Spokesman Charles Cyrill said the association “stressed the importance of addressing - as soon as possible - how the program will end, including the possible suspension of the program.’’

Dealer say the delays have led to a cash crunch. They typically borrow money to put new cars on their lots and must repay those loans within a few days of a sale.

Still, the program provided at least a temporary jolt for automakers.

GM announced plans to rehire more than 1,300 workers, and automakers have been paying overtime to boost production. Hyundai recalled 3,000 workers in Alabama.

“At a time of great economic distress, cash for clunkers has stimulated increased production by domestic automakers, putting thousands of idled workers back on the job,’’ said Representative John Dingell, a Michigan Democrat.

Photo Gallery
Top 10 cars sold under clunker program (Globe Staff / George Rizer)

Top 10 cars sold under clunker program