U.S. could freeze cash for clunkers

7/31/2009

WASHINGTON The White House last night denied reports that the government s popular cash for clunkers program was being suspended, but it did say it was reviewing the program.

Transportation Department officials called lawmakers offices last evening to alert them of plans to suspend the program as early as today amid concerns the $1 billion budget for rebates for new auto purchases may have been exhausted in only a week.

But a White House official said later the program had not been suspended and officials there were assessing their options.

The program offers owners of old cars and trucks $3,500 or $4,500 toward a new, more fuel-efficient vehicle.

The National Automobile Dealers Association surveyed its members and told the Transportation Department that it had a very large backlog of applications, according to Bailey Wood, a spokesman for the association. Late yesterday, the group said the Transportation Department had responded by telling it to stop taking applications at midnight.

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

Rae Tyson, a spokesman for the National Highway Traffic Safety Administration, which oversees the program, declined comment.

Congress last month approved the Car Allowance Rebate System program, known as CARS, to boost auto sales and remove inefficient cars and trucks from the roads.

The Transportation Department had begun accepting applications on Monday, when rules putting the program in place took effect. But car dealers had been accumulating the applications since July 1, when Congress put the law into effect.

Congress evidently did not anticipate that the money would fly out the door so fast; it said that applications would have to be submitted by Nov. 1.

Through late Wednesday, 22,782 vehicles had been purchased through the program and nearly $96 million had been spent. But a survey of 2,000 dealers by the National Automobile Dealers Association found about 25,000 deals had not yet been approved by NHTSA. It raised concerns that with about 23,000 dealers taking part in the program, auto dealers may already have surpassed the 250,000 vehicle sales funded by the $1 billion program.

There s a significant backlog of cash for clunkers deals that makes us question how much funding is still available in the program, Mr. Wood said.

The sudden depletion of the fund was a surprise.

Yesterday evening, the government Web site describing the program www.cars.gov still showed a chart shaped like a fuel gauge that indicated $779 million was available for trade-ins of cars and light trucks.

The clunkers program was set up to boost U.S. auto sales and help struggling automakers through the worst sales slump in more than a quarter-century. Sales for the first half of the year were down 35 percent from the same period in 2008, and analysts are predicting only a modest recovery during the second half of the year.

Sales this year are running under an annual rate of 10 million light vehicles. As recently as 2007, automakers sold more than 16 million cars and light trucks in the United States.

Even before the suspension, some in Congress were seeking more money for the auto sales stimulus. Rep. Candice Miller (R., Mich.) wrote in a letter to House leaders on Wednesday requesting additional funding for the program.

This is simply the most stimulative $1 billion the federal government has spent during the entire economic downturn, she said. The federal government must come up with more money, immediately, to keep this program going.

Brendan Daly, a spokesman for House Speaker Nancy Pelosi (D., Calif.), said they would work with the congressional sponsors and the administration to quickly review the results of the initiative.

General Motors Co. spokesman Greg Martin said the automaker hopes there s a will and way to keep the CARS program going a little bit longer.

The program had two goals: aiding the ailing car industry and improving fuel economy in the vehicles that are on the road.

Cars submitted under the program were junked, not resold. They had to be less than 25 years old and have a fuel economy, as rated by the window sticker, of 18 miles per gallon or less.

The size of the rebate depended on the fuel economy of the replacement vehicle. Consumers were also supposed to receive the scrap value of their trade-in.