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

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.

Government figures, based on fewer than 200,000 transactions analyzed, show that, despite the administrative fiasco, the program appears to have done its intended job of taking old gas guzzlers off the road and replacing them with newer, thriftier vehicles. The average fuel economy of those vehicles traded in is 15.5 mpg, while the average fuel economy of the new vehicles purchased is above 25 mpg. The language of the bill had been criticized by some lawmakers and environmentalists for favoring the sale of pickup trucks. But consumers had other ideas, buying small cars in much greater proportion.

"Consumers seemed to choose vehicles in order to get the maximum discount, which meant the highest fuel-economy vehicles, and seem to be buying insurance against higher prices at the pump ahead," said George Pipas, senior sales analyst at Ford Motor (F).

What Consumers Bought

The top 10 vehicles purchased were: Toyota Corolla, Honda (HMC) Civic, Ford Focus FWD, Toyota Camry, Toyota Prius, Hyundai Elantra, Ford Escape FWD, Honda Fit, Nissan (NSANY) Versa, and Honda CR-V 4WD. Just two of the top 10 were from U.S. automakers, though six of the 10 vehicles are built in the U.S.

By manufacturer, Toyota (TM), as of Aug. 14, was the biggest beneficiary of the program, accounting for 18.9% of transactions. General Motors was No. 2, claiming 17.6% of sales.

J.D. Power & Associates estimates the program will push industrywide U.S. sales close to 1.1 million for August, the first time monthly sales have topped 1 million all year.

Many lawmakers balked at supporting the legislation, especially after GM and Chrysler received tens of billions in taxpayer-funded loans. Internet message boards have been clogged with people complaining the government has no place funding other people's car purchases.

GM, just prior to the announcement to end the program, had decided to opt out of further clunker deals and agreed to advance money to cash-strapped dealers whose transactions hadn't been processed yet by the government. GM said it overshot its sales target for the last 60 days by 60,000 vehicles. GM, Ford, and others were all facing shortages of vehicles that qualified for the program, prompting GM and Ford to boost production and the Transportation Dept. last week to allow dealers to hand out vouchers to customers for cars that would have to be ordered.

The National Automobile Dealers Assn. warned dealers Aug. 19 of a rising chance that the program could run out of money unexpectedly, leaving dealers on the hook for vouchers of $3,500 to $4,500 per sale.

"Given that the funding could run out at any time, the government is erring on the side of caution so neither consumers nor dealers are left holding the bag," said Jeremy Anwyl, CEO of Edmunds.com. "We expect there will be a flurry of activity over the weekend as the program comes to a close."


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