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'Clunkers' Program Is Running Out of Cash

By Dana Hedgpeth
Washington Post Staff Writer
Friday, July 31, 2009

The government's "cash for clunkers" program, aimed at boosting stagnant auto sales, is almost out of money, putting its future in question, according to sources familiar with the effort.

Passed by Congress in late June to help the flagging U.S. auto industry and launched just a week ago, the $1 billion program gives vouchers worth up to $4,500 to consumers who trade in gas-guzzling cars for more fuel-efficient models. The highly publicized effort was scheduled to run until Nov. 1, or until money ran out. It was not expected to run out of cash so quickly.

The effort, formally known as the Car Allowance Rebate System, or CARS, appeared headed for a temporary shutdown at midnight Thursday. Federal transportation officials became increasingly concerned that the program's popularity with consumers could drain its budget by week's end, according to sources familiar with the discussions who spoke on the condition of anonymity.

Transportation Secretary Ray LaHood called lawmakers Thursday afternoon to warn them the program would be halted at midnight, according to congressional sources. Several other sources in the administration and on Capitol Hill also said the effort faced a midnight suspension.

But later, administration officials said that no such suspension was planned and that all valid transactions under the program would be honored. White House spokesman Robert Gibbs said in a statement that the administration is "evaluating all options" to keep the program funded.

"We are working tonight to assess the situation facing what is obviously an incredibly popular program," the statement said. "Auto dealers and consumers should have confidence that all valid CARS transactions that have taken place to-date will be honored."

Lawmakers from Michigan held a conference call Thursday night to discuss the matter and were scheduled to take up the issue again Friday morning. They were also preparing to speak with Obama administration officials about obtaining more funding.

"We're going to try to figure out what's a realistic amount of money and get it into the program," said Rep. Mike Rogers (R-Mich.).

The official Web site for the program, Cars.gov, said last night that $779 million remained in its coffers. Transportation Department officials said last night they were working with the White House and congressional leaders to find ways to sustain the program.

Auto dealers said they've had an overwhelming response from consumers wanting to turn in their clunkers. Under the program, consumers get a voucher for up to $4,500 -- depending on the model and average fuel economy of their car or truck -- if they buy a new car or truck that gets better gas mileage than the one that was scrapped. The payoff grows depending on the difference in the fuel efficiencies of the old and new cars.

"Clearly, this has been a very stimulative program that's got consumers back into the car market. It's our hope that possibly more funds can be made available," said Cody Lusk, president of the American International Automobile Dealers Association.

Lusk said the group has fielded hundreds of calls from frustrated dealers who have had problems entering vehicle data into the program's Web site. He said frequent crashes of the site have made it harder for car sellers to complete deals.

Jack Fitzgerald, who owns several dealerships in the Washington region, said his stores have already taken in about 200 clunkers. He said the government hyped the program too much before setting clear rules and guidelines on it. He suggested that the government consider lowering the dollar amount of the vouchers and extending the program for more time.

Tammy Darvish, another major auto dealer in the Washington area, said her more than two dozen dealerships have had lots of interest in the program but its success has left dealers strapped for money as they wait for payments from the government.

Under the program, dealers credit the amount of the voucher to customers who buy new cars. They then get reimbursed by the government.

"There's a whole lot of money out there that dealers haven't collected on," said Darvish, who noted that she's taken in about 200 clunkers. "We've sold the cars and we've processed the paperwork, but we haven't been reimbursed. I'm out about $1 million. The government is supposed to reimburse me for that."

Darvish said she expects that even more customers will come in over the weekend to trade in their cars.

Staff writers Ben Pershing, Sholnn Freeman, Paul Kane and Scott Wilson contributed to this report.

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