Auto Rebate Funds Dry Up

U.s. Scrambles To Keep Wildly Popular 'Cash For Clunkers' Afloat

July 31, 2009|By Jim Puzzanghera, Martin Zimmerman and Tiffany Hsu | Jim Puzzanghera, Martin Zimmerman and Tiffany Hsu,Tribune Newspapers

WASHINGTON - -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 in Los Angeles, 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."

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 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 can 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, Sutton's 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 two 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.

Dealers are hoping more money is found.

"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 (Calif.) Automobile Dealers Association. "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 the government can come up with more money.

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.

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