Government suspends 'cash for clunkers' program

The government is suspending the explosively popular "cash for clunkers" program fearing it would go broke before it could parcel out what it still owes dealers for a huge backlog of sales.

The pending suspension was confirmed by Bailey Wood, legislative director for the National Automobile Dealers Association (NADA), which had been called Thursday night by the National Highway Traffic Safety Administration, which administers the program. Rep. Candice Miller, R-Mich., confirmed as well, saying she had been told by congressional leaders.

"Obviously the program has been an immense success in stimulating automotive sales," Wood said.

"The thing has exploded. It has exceeded everyone's expectations," said Miller, who was involved in writing the original legislation, known as CARS, for Car Allowance Rebate System. "Throughout our history, it has been auto sales that have pulled us out of recession. People are more likely to buy cars than houses. Not to be too Pollyannaish, but we're gettin' our mojo back. This could be the pivot" that begins an economic recovery.

The White House said Thursday night that "dealers and consumers should have confidence that all valid CARS transactions that have taken place to date will be honored."

As of late Thursday, the government had committed nearly all of the program's $1 billion, according to calculations by NADA and various congressional offices. It's unclear whether and how the CARS program could be restarted.

"We're in a full-court press trying to get more cash for 'cash-for-clunkers'," Miller told USA TODAY Thursday night — pointing out she wanted $4 billion for the program, not the $1 billion that was appropriated.

Rep. Betty Sutton, D-Ohio, also a co-sponsor of CARS who wanted $4 billion, got the news from DOT Secretary Ray LaHood Thursday night, according to Sutton's chief of staff Nichole Francis Reynolds. Reynolds said, "The program's spent $150 million and has another $800 million to $850 million in (pending) obligations… This is one of those programs you can really see working." She says CARS has "overwhelming support" and Sutton was pressing to free more money to continue the program.

DOT could not be reached for comment Thursday night.

Wood said dealers were amazed at how many shoppers visited their showrooms this week. The program has been in effect since July 1, but the details were finalized only a week ago.

The $1 billion was to provide rebates of $3,500 or $4,500 for people who traded in older cars rated 18 miles per gallon or less for new ones rated 22 mpg or more. The old cars are scrapped.

Political controversy already has begun over the popular CARS program.

If more money is earmarked for the program, it should require the new cars to get better fuel economy than under the original program, say Sens. Dianne Feinstein, D-Calif., and Susan Collins, R-Maine, who both played a role in creating the program.

"We will insist than any extension of the program requires that the minimum fuel economy improvement for newly purchased vehicles be at least two miles per gallon higher than it is under the enacted Clunkers program. It is also important to include lower-income consumers who are disadvantaged under the current program. So, we would also include a voucher for the purchase of fuel-efficient used vehicles," they said in a joint statement late Thursday. "We believe that any extension of the 'Cash for Clunkers' program must go further in advancing the goals of better fuel efficiency and greater emissions reductions. We will not support any bill that does not meet these goals."

Carmakers and dealers have booked expensive advertising to capitalize on buyers' interest in CARS, and now will be left promoting a tie-in with a discontinued government program — one that wasn't supposed to end until Nov. 1. "Disappointed," says Chrysler spokesman Scott Brown..

"It's too late to recall the ads," says Beau Boeckmann of Galpin Ford, the nation's largest Ford dealer, in Los Angeles. Galpin had done about 100 clunker deals and was hoping for more. " We had increased our ad budget to get the word out. We are very heavy on radio, newspaper and getting direct mail together," Boeckmann says.

"Now what do you tell people when they walk in" for a clunker deal? "It's tough."

The program was so popular so fast that dealers overwhelmed the government website and were unable to get requests for the CARS rebates processed. "Every day we spent an hour, hour-and-a-half with the government trying to smooth the process," says NADA's Wood.

Some dealers had stepped back, worried the program would go broke before paying them. "If you don't have an absolute guarantee of payment, you could be left floating a lot of money" in anticipation of federal CARS reimbursements, says Peter Greiner, a Ford dealer in Casper,. Wyo. "They made the right call," says Will Churchill, a Honda and General Motors dealer in Fort Worth. "The government doesn't have any idea how big this deal is."

CARS provided the rebates in the form of electronic funds transfers to dealers, to repay them for the clunker discount they gave buyers. Buyers never saw the cash and didn't have to deal with the federal website.

Rules governing the program totaled 135 pages. They required dealers to register, then to fill out electronic forms after each transaction. Dealers had to guarantee they gave the customer the appropriate discount, that they wrecked the engine in the clunker so it never could be reused, than the non-running junker went to a scrap dealer.

"They keep coming up with new forms to sign," says Churchill.

In the Queens borough of New York, Paragon Honda already hauled away nearly 60 clunkers to a junkyard before it found the rules require them to be disabled on the auto lot. Now they have to be brought back, have their engines destroyed and hauled back.

"Killing cars is not something that I'm used to doing," says Brian Benstock, the dealership's general manager.

Sharon Silke Carty contributed to this report.