Posted by: David Kiley on July 31, 2009
The White House and Congressional leadership on Friday are reviewing the popular Cash for Clunkers program that gives consumers thousands of dollars for trading in old cars so the program can be extended into the Fall.
The program proved so popular that the Department of Transportation warned lawmakers that the program appeared to have burned through its $1 billion funding in just one week.
Under the program, a buyer who trades a vehicle that gets 18 mpg or less for a car with a mileage improvement of more than four miles per gallon but less than 10 were eligible for $3,500; a buyer whose new vehicle was rated 10 miles per gallon or better than the old one was eligible for $4,500; an old pickup truck could be swapped for a new one with just a 2 mpg improvement for $3,500. The trade in vehicles have been old with high-mileage because there is no other trade-in value on the car, unless automakers and dealers add to the government rebates (which most have),and the engines of the cars are recycled.
Congress funded the program with $1 billion as a measure to boost the ailing auto industry. The original bill called for $4 billion, but debate bogged down when California Democrats wanted the bill to be more tilted to higher fuel economy vehicles and include fuel efficient used cars that would benefit lower income people.
Midwestern Democrats, the United Auto Workers and the auto industry lobby wanted the bill to favor more pickup truck and SUV sales, which are more profitable to the automakers. Congress planned to revisit the debate in the Fall after recess, but lawmakers underestimated the popularity of the program.
Also, dealers had been making sales since July 1, and swamped the DOT system with transactions when it opened its computers for processing the applications July 27.
Dealers and automakers will need clear direction Friday about whether the funding of the program will be interrupted, otherwise their flow of transactions will be thrown into chaos heading into the weekend.
Automakers said mid-week they thought July auto sales would clock in at an annualized selling rate of 12 million, which would be a more than 20% gain from June and the monthly average for the first half of the year.
Transportation Department officials called lawmakers earlier Thursday to alert them of plans to suspend the program as early as Friday. But a White House official said later the program had not been suspended and they were reviewing their options to keep the program funded.
White House press secretary Robert Gibbs said they were working 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.”
Though the program has been controversial, with many Republicans not wanting to support subsidized auto sales after tax-payers bailed out General Motors and Chrysler, it is unlikely that the White House and the Democratically controlled White House will let the program slip off a cliff, especially when the Administration is struggling with healthcare reform and the President’s approval ratings are slipping.