Posted by: David Kiley on July 30, 2009
There may need to be a new award for short-sightedness in Washington DC: The Clunker Award.
The U.S. Transportation Dept. is expected on Friday to announce a suspension of the popular “Cash for Clunkers” program that rewards car buyers for trading in old cars and trucks for new, more fuel efficient vehicles after just one week. Federal officials fear that a backlog of applications for rebates will quickly exhaust the fund, and will tell dealers on Friday to stop closing sales that depend on the government money.
The White House was working feverishly Thursday night to find a way to avert a suspension of the program.
The controversial program gives vehicle buyers either $3,500 or $4,500 depending on the vehicle being traded in and the vehicle purchased. Dealers began making sales based on the extra rebates earlier this month, weeks before the government began processing transactions last Friday. The backlog swamped the DOT’s ability to process the sales.
A suspension of the program would be a blow to a beleaguered auto industry, which just began seeing an upturn in sales thanks in part to the program. Automaker executives have said in recent days that July sales should clock in at an annualized rate of 12 million, compared with a rate of less than 10 million last month and for the first half of the year.
Congress last month approved the Car Allowance Rebate System (CARS) following the success of similar programs in Europe. It was supposed to be funded by $4 billion. But differences over the details between California Democrats and Midwest Democrats forced a compromise that granted only $1 billion. Legislators expected to revisit the program in the Fall for a second funding, as well as additional debate about modifying the details of the bill.
Through Wednesday, almost 23,000 vehicles had been purchased through the program. At least another 25,000 were believed to be sitting in the system unprocessed yet. And the fear is that dealers may have already processed more than 200,000 sales that haven’t been sent in yet. The DOT is concerned that sales are being made faster than the agency can process them, and that money will be promised to consumers beyond the $1 billion allocated so far.
Michigan Congresswoman Candace Miller spent Wednesday and Thursday lobbying Speaker of the House Nancy Pelosi to find additional funding before Congress adjourns.
“There can be no doubt that the Cash for Clunkers program is a complete success given the fact that the entire $1 billion allocated to the program was expended in less than a week,” said Miller late Thursday when word got out of the program’s suspension. “This is simply the most stimulative $1 billion the federal government has spent during the entire economic downturn. The federal government must come up with more money, immediately, to keep this program going. Whether we look at returned TARP funds or reprogram stimulus funds to a truly stimulative purpose, the administration must take action.”