Autos August 20, 2009, 7:50PM EST

Cash for Clunkers Chugs to a Halt

The Transportation Dept. will end its popular trade-in program on Aug. 24. But dealers will have to wait for the government to catch up to their rebate claims

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The popular cash-for-clunkers government program, which gave U.S. consumers discounts of up to $4,500 for a new-vehicle purchase, will end Monday, Aug. 24, at 8 p.m. After that, dealers are not permitted to make any more sales of cars with clunker rebates.

As an incentive to boost sagging car sales and offset the negative pull of joblessness, falling home prices, and a shaky stock market, the clunkers program was a raving success. Since kicking off the last week of July, the federal government estimates, the program spurred some 700,000 new car and truck sales. Early estimates were it would take three months for consumers to burn through $3 billion set aside by Congress for the program. Instead, it took less than a month.

"This program has been a lifeline to the automobile industry, jump-starting a major sector of the economy and putting people back to work," said U.S. Transportation Secretary Ray LaHood. "At the same time, we've been able to take old, polluting cars off the road and help consumers purchase fuel-efficient vehicles."

A Backlogged System

The Transportation Dept. is halting the program because the agency estimates that most of the funding is spoken for, though it has only been able to process fewer than 200,000 transactions. Indeed, the clunkers rebates proved to be a massive headache for many dealers, which had to grant the discounts and then wait for the government to process claims for payment to the dealerships. Dealer filings swamped the Transportation Dept.'s ability to process them. The agency's Web site suffered frequent crashes, and 40% of the transactions have been returned because of filing errors and must be re-submitted.

The system got so backlogged the Transportation Dept. is sure the $3 billion is almost entirely accounted for despite the fact that the agency has paid out less than $150 million so far to dealers. Hundreds of temporary public and private-sector workers have been added to the agency's rolls to finish the job.

The Transportation Dept. said $1.9 billion of the money has been claimed so far, through 457,000 transactions. But it estimated dealers are likely sitting on an additional $400 million in deals that have yet to be submitted. The Aug. 24 deadline includes some buffer to absorb any surge of last-minute deals this weekend. The deadline applies only to generating new deals; the government will continue processing transactions turned in by dealers for some time, and dealers will have chances to correct any transaction kicked back by the government.

In the end, the Transportation Dept. decided to wrap up the program because its research showed dealers were racking up deals much faster than the agency could process them. "It's a high-class problem," said a White House senior official on Aug. 20, calling it arguably the "most efficient piece of economic stimulus done to date." Indeed, the government had green-lighted $1 billion to fund what it thought would be a month or two of discounts. But that money was gone in a week, and Congress quickly moved to add $2 billion more.