AUTOS July 31, 2009, 1:03PM EST

Lawmakers Scramble for 'Clunker' Funds

With the Cash for Clunkers auto stimulus program facing a shortfall, the House votes to boost funding by an additional $2 billion

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The Federal Cash for Clunkers program that has been giving car buyers up to $4,500 to replace old cars with new, more fuel-efficient vehicles will operate through the weekend, the Transportation Dept. said July 31. Meanwhile, the House of Representatives voted Friday to add $2 billion to the program, which unexpectedly ran out of its initial appropriation of $1 billion in short order. The Senate is expected to take up the measure next week.

The program, approved by Congress last month, was funded with $1 billion—enough to fund about 250,000 clunker sales—and was scheduled to run through Nov. 1. Dealers had been cutting deals with consumers all month, so when the Transportation Dept. opened its computers to process the applications for funds on July 27, the money was quickly drained.

If Congress and the White House can't find or appropriate money before the congressional recess in August, the program will end, or at least be suspended until legislators come back in the fall and can vote for more funding.

The Michigan delegation had been working feverishly the last two days to find more funding to keep the program going. Friday's House measure, which passed 316 to 109, would transfer $2 billion from unused funds from the stimulus legislation. House supporters of additional funding said Friday that the rebate plan saved jobs and promoted more energy-efficient automobiles. Opponents argued against providing more funds targeted to just the ailing automobile industry.

Instant Stimulus

"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 Representative Candace Miller (R-Mich.). "This is simply the most stimulative $1 billion the federal government has spent during the entire economic downturn."

The program, while controversial, gave automakers a shot in the arm after months of seeing sales get hammered by the recession and collapsed housing values. Industry sales through June were down 35% from the same period a year earlier. Such a precipitous drop helped to drive already weakened automakers General Motors and Chrysler into Chapter 11 bankruptcy, and it even caused Toyota (TM) to post an operating loss.

The Clunkers bill, say automaker executives, is expected to push sales in July up 20%-plus from the levels seen in the first six months of this year. AutoNation (AN), the world's largest auto retailer with 225 dealerships in the U.S., says showroom traffic was up 36% in July, with 3,000 sales attributed to the Clunkers program. Imports made up 60% of the cars sold through the program, with an emphasis on smaller and midsize cars that get high fuel economy. "This is what the economy needed," says CEO Mike Jackson.

The program's success surprised many analysts. For one thing, the government made some changes between the time the bill was passed and when it was implemented. For some older vehicles, they applied today's newer and more realistic method of calculating a car's fuel economy rating. That gave some models that were rated at 19 or 20 mpg—too high to qualify under the original bill—a rating at or below 18 mpg. So those people could qualify. "That opened the door for more cars and allowed some minivans to qualify," says John Wolkonowicz, analyst with IHS Global Insight in Boston.