Cash for Clunkers' Program Set to End Monday at 8 p.m.

By Dana HedgpethWashington Post Staff Writer Thursday, August 20, 2009; 5:04 PM
Transportation Secretary Ray LaHood announced that the popular "Cash for Clunkers" program will end at 8 p.m. on Monday because the $3 billion allotted for trade-ins has been largely spoken for.

Intended to bolster the auto companies and encourage consumers to buy fuel-efficient cars, the federally sponsored buyer incentive program proved to be wildly popular, attracting far more auto buyers than originally projected.


"It's been a thrill to be part of the best economic news story in America," LaHood said in a statement Thursday. "Now we are working toward an orderly wind down of this very popular program."

Dealerships have been swamped with consumers looking to trade in their clunkers for a voucher worth up to $4,500 toward the purchase of a new, more fuel-efficient vehicle. Under the program, which kicked off July 24, dealers essentially front the money for the cash incentive with the understanding that the government will reimburse them once they file the necessary paperwork online and the deal is approved. But many dealers said they have not been reimbursed by the government and are becoming more cash-strapped.


Transportation officials said paperwork representing 457,000 sales, worth about $1.9 billion, had been turned in to the government. Just under 40 percent -- or 170,000 -- of the applications have been reviewed so far, accounting for $145 million in payouts. But a large number of those are incomplete or have inaccurate information, which means the application is sent back to the dealer to be re-submitted, according to a senior administration official who briefed reporters Thursday.

Officials initially thought money for the program would last at least through Labor Day.
The National Automobile Dealers Association cautioned its members Thursday to not take more trade-ins, warning that there may be no more money left after the government processes thousands of backlogged applications.


"We are making dealers aware of the fact that [the Department of Transportation] has said that once the money is gone, that's it," said NADA Chairman John McEleney. "If there are more deals submitted than what the funds can support, there's a risk involved" that the dealer won't be reimbursed.

"There's [thousands of] vehicles being sold a day, so it doesn't take long to accelerate what's left pretty quickly," McEleney said. "The more conservative approach is for a dealer to sit back and wait so you don't make the situation any worse than it is in terms of exposure."


Another problem is that dealers have to pay off the loans they took out to buy vehicles from automakers once they sell the vehicles. But many dealers are now stretched so thin that without the reimbursement from the government they can't pay off their loans, and they are reluctant to sell more cars.


To try to help deal with this, General Motors said it will help cash-strapped dealers starting Thursday by advancing them a 30-day, interest-free loan for the rebate funds they are waiting to get from the government. The company said it is providing the funds so dealers have enough liquidity to run their businesses. The money has to be repaid within 30 days or GM will take it back from the dealer's account with the automaker, officials said.


"These dealers have hundreds of deals they're waiting to get reimbursed on from the government," said John McDonald, a GM spokesman. "What people don't realize is it is really tough on dealers to come up with this much money and deliver these cars if they're not getting paid."

GM has said it will increase its third- and fourth-quarter production because of demand from the clunkers program. Other automakers, including Ford, Chrysler and Toyota have said they would also increase their productions due in large part to the clunkers program.

To deal with the onslaught of paperwork, transportation officials said they expect to triple the number of workers processing forms by the end of this week to 1,100. The Department of Transportation said it has reviewed 167,000 applications, out of 458,000. They say they've also held web seminars to help dealers understand how to fill out the paperwork properly.


On his radio address Thursday, President Obama said the clunkers program had "been successful beyond anybody's imagination. And we're now slightly victims of success because the thing happened so quick, there was so much more demand than anybody expected, that dealers were overwhelmed with applications."


"I understand dealers want to get their money back as soon as possible, but the fact of the matter is this is a good-news story; they are seeing sales that they have not seen in years. And they will get their money, but we've got to process it properly." He called it a "high-class problem to have -- that we're selling too many cars too quickly and there's some backlog in the application process. It is getting fixed."

Staff writer Peter Whoriskey contributed to this report.