'Cash for Clunkers' Requirements: Dealers at Risk While Additional Funding in Limbo

Aug. 1, 2009— -- Car dealerships around the country have gone from dismal to dynamic in a matter of days, thanks to the government's "Cash for Clunkers" program. But because the initial response overwhelmed the program and drained it of funding, dealerships that close deals over the weekend could be venturing into risky territory.

On Friday, the House of Representatives quickly passed legislation to add $2 billion in funding to the cash-strapped program. But the Senate will have to pass the exact same bill next week since the House went into recess yesterday and will not be around to hash out differences.

In the meantime, car dealerships that continue to offer the government's incentive to customers are doing it on faith.

The program pays consumers cash vouchers if they trade in their gas-guzzling cars for a new car. It has been so successful that the $1 billion allocated for it ran out within a week, and officials estimate that 250,000 cars have already been sold as a result.

Ethan Rossignol, a sales manager at DARCARS Toyota of Silver Spring, Md., expected to surpass the dealership's July goal of 270 by about 100 cars, largely because of the program. But he said that the dealership had already gone out on a limb to the tune of $1 million.

"[It's] a little bit of a risk," Rossignol told ABC News.

In a statement on its Web site, the National Automobile Dealers Association (NADA) said it appreciates the administration's effort to continue the program, but it advised dealers to proceed with caution while the additional funding remains in limbo.

"NADA aggressively supports such additional funding and is working to secure it," said NADA chairman John McEleney, who is also a multifranchise dealer in Iowa. "Moreover, NADA has been given specific assurances by the Administration that all transactions consummated through today will be honored based on their belief that sufficient funds remain available.

"Nonetheless, until further definitive guidance on the availability of funding is provided by the Administration, dealers who accept additional 'clunkers' deals may face a risk that they will not be reimbursed," the statement read.

One of NADA's suggestions was for dealers to take deposits in lieu of consummated sales, "with an eye toward legislative success next week."

Meanwhile, noting Web site issues and other glitches, many have criticized the Clunkers' program for its own clunkiness.

"A borderline train wreck," said Charlie Swenson, general manager at Walser Toyota in Bloomington, Minn., according to The Associated Press.