Lawmakers Scramble for 'Clunker' Funds

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"That 11th-hour change made a difference." The deal was also a great one for buying super-cheap subcompacts, he said. For example, a Chevrolet Aveo, which sells for around $13,000 with a few options, could be had for less than $9,000 or so using Clunker cash and rebates from GM. A Hyundai Accent has a starting price of below $7,000 with the rebate.

Teens Behind the Wheel

The other unexpected outcome is that some of the owners of clunkers had better credit than many analysts thought. People with cars that old usually aren't in the new-car market, Edmunds.com said before the program started. And that's often true. But many middle-class and affluent families with stronger credit had their teenage kids driving a clunker. So the parents used the program to get a new car, says James N. Hall, principal of 2953 Analytics, a Detroit-area consulting firm. Says Hall: "A bunch of teens will get new cars." Dealers also say they found customers with good credit who just drove their cars for a long time or gave the old car to the kids. "It's worked way better than we thought," says James Hardick, managing partner of Moritz Chevrolet in Fort Worth. "We'll take more money, whatever we can get."

The White House has assured potential buyers that sales made through this weekend that qualified for Clunker reimbursement would be honored no matter what. That, say dealers, will make for brisk business this weekend, though those sales won't show up in automaker reports until August sales are tallied.

Earl Stewart, who owns a Toyota dealership in North Palm Beach, Fla., said the program's changing messages have created confusion among his customers and staff. Stewart's accounting department could only enter about a dozen of the 47 sales he made into the government Web site set up to handle the transactions, leaving him wondering if he will get refunded for the remaining vouchers.

With so much uncertainty surrounding the program, Stewart said he planned to continue to sell cars under the program on Friday but would delay delivering the new vehicles and scrapping the trade-ins. Drivers would be put in loaners until he was absolutely certain the program was still going. "It's been a total panic with my customers and my sales staff. We are running in one direction and then we are running in another direction," he said.

Seeking More Improvement in MPG

The Clunkers program, modeled after similar schemes in Europe, was pushed in the spring by mostly Democratic legislators from the Midwest, especially Michigan and Ohio, where the bulk of auto assembly and parts plants are located. Joblessness in those states was already running high, but the steep drop in auto sales since last fall, combined with the bankruptcies of GM and Chrysler, have driven unemployment in the rust belt to double digits, above the national average.

Fast funding of the program could further derail the debate California Democrats were hoping for this fall. Senator Dianne Feinstein (D-Calif.) had introduced a bill that would have encouraged the purchase of vehicles even more fuel-efficient than what the current legislation calls for, as well as for the inclusion of fuel-efficient used cars to put the program in closer reach of low-income car buyers.

Feinstein, as well as Senator Susan Collins (R-Maine), though, said Friday they may take advantage of the frenzy to get the program extended and pass the measures they wanted all along. They said in a joint statement: "We will insist that any extension of the program requires that the minimum fuel economy improvement for newly purchased vehicles be at least 2 miles per gallon higher than it is under the enacted Clunkers program." For cars, the current minimum improvement is 5 mpg. And, they said, to help low-income car owners take part, they would include vouchers for fuel-efficient used vehicles.

Under the Car Allowance Rebate System (CARS) program, a buyer who trades a vehicle that gets 18 mpg or less for a car with a mileage improvement of more than 4 mpg but less than 10 were eligible for $3,500; a buyer whose new vehicle was rated 10 mpg 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 tend to be old with high mileage because there is no other trade-in value on the car, unless automakers and dealers add to the government rebates. The engines of Clunker cars are destroyed and recycled. The rest of the cars get recycled as well, with parts going into the used parts market.

The 18 mpg fuel economy requirement was set specifically by legislators and industry lobbyists to encourage the trade-in of pickup trucks. Pickups and SUVs are treated differently from cars in the program. Merely trading an old pickup for a new one that gets 2 mpg better is worth $3,500 from Uncle Sam.

Kiley is a senior correspondent in BusinessWeek's Detroit bureau. Welch is BusinessWeek's Detroit bureau chief. The Associated Press contributed to this report.

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