U.S. puts brakes on `cash for clunkers’

Jul 31, 2009

The federal government suspended its “cash for clunkers” program at midnight Thursday after less than four days in business, telling Congress that the plan would burn through its $950 million budget for new-car purchases.

The decision came after auto dealers warned the government Thursday that it was in danger of losing track of how many trades had been made.

Congress last month approved the Car Allowance Rebate System program, known as CARS, to boost auto sales and remove some inefficient cars and trucks from the roads. The program kicked off last Friday and was heavily publicized by car companies and auto dealers.

The plan offering owners of old cars and trucks $3,500 or $4,500 toward a new, more efficient vehicle has proved wildly popular, with 22,782 trades certified by federal officials since Monday.

But the National Highway Traffic Safety Administration told dealers Wednesday that a vast majority of transactions submitted were being rejected for incomplete or illegible paperwork.

A White House official said later that officials were assessing the situation facing the popular program but auto dealers and consumers should have confidence that transactions under the program that already have taken place would be honored.

A survey of 2,000 dealers by the National Automobile Dealers Association, the results of which were obtained by the Detroit Free Press, found about 25,000 deals not yet approved by NHTSA, or about 13 trades per store. With 23,005 dealers asking to be part of the program, auto dealers may have already arranged the sale of more than the 250,000 vehicles that federal officials expected the plan to generate.

Since the program was to run as long as there was money left in the $950 million pool, dealers have been concerned the fund could run dry before they were reimbursed for all their deals which requires them to junk the clunker. “That’s something we’re watching very closely,” said NHTSA spokesman Rae Tyson. “We need to make sure that there’s enough money in the system to cover the transactions that have already occurred. We certainly don’t want dealers to get stuck.”

The plan was officially launched on Monday, but Congress allowed dealers to start taking trades after July 1. NHTSA requires dealers to get several pieces of information from buyers, including proof of insurance and registration, and disable clunkers by destroying its engine before applying for reimbursement.

Ken Czubay, Ford Motor Co.’s vice president of U.S. sales and marketing, said many Ford dealers are worried that they will be out thousands of dollars per car if they sell a vehicle to the consumer, disable the engine, and find out later the funding was exhausted: “I think it was a well-intended program . . . and frankly the program at this very early stage has to be viewed as a huge success.”

Several Michigan lawmakers have vowed to press for more money for the program, which had originally been set for $4 billion. But Sen. Dianne Feinstein, D-Calif., has said she would block more money unless the program was changed to boost the gains in fuel economy between old and new models.

Federal officials said Thursday that the government would honor any deal agreed to before changes made in a federal database of mileage figures last Friday. The U.S. Environmental Protection Agency updated its data on 30,000 old models, disqualifying 76 models that had previously met the program’s standards of getting no more than 18 mpg. Deals made after Friday would have to rely on the updated data — if they can get in.