July 30, 2009 in Business, Nation/World

Officials: ‘Cash for Clunkers’ set to run out of gas

Justin Hyde Detroit Free Press
Toby Talbot photo

A car turned in as a clunker sits in a recycle dumpster at Capitol City Buick Pontiac GMC in Berlin, Vt. Tuesday, July 28, 2009. Car and truck owners looking to junk their gas guzzlers flocked to dealerships to take advantage of the government’s “cash for clunkers” program.
(Full-size photo)

WASHINGTON - The U.S. government will suspend the popular cash-for-clunkers program after less than four days in business, telling Congress that the plan would burn through its $950 million budget by midnight, several sources told the Detroit Free Press.

The Michigan delegation was holding an emergency meeting convened by Rep. John Dingell, D-Dearborn, to discuss their next steps. The U.S. Department of Transportation did not immediately comment on its plans for the program, or what would happen to deals already in progress.

The decision to suspend the plan came after auto dealers warned the government Thursday that it was in danger of losing track of how many trades had actually been made.

The plan offering owners of old cars and trucks $3,500 or $4,500 toward a new, more efficient vehicle has proven wildly popular, with 22,782 trades certified by federal officials since Monday. But the National Highway Traffic Safety Administration told dealers Wednesday that a “vast majority” of transactions submitted were being rejected for incomplete or illegible paperwork.

A survey of 2,000 dealers by the National Automobile Dealers Association, the results of which were obtained by the Free Press, found about 25,000 deals not yet approved by NHTSA, or about 13 trades per store. With 23,005 dealers asking to be part of the program, auto dealers may have already arranged the sale of more than the 250,000 vehicles that federal officials expected the plan to generate.

Bill Golling, owner of Golling Chrysler-Jeep-Dodge in Bloomfield Hills, Mich., said his store had sold 80 vehicles already under the program.

“It’s working so well I’ve got people mad at me because I can’t take care of them,” he said.

Since the program was to run as long as there was money left in the $950 million pool, dealers have been concerned the fund could run dry before they were reimbursed for all their deals - which requires them to junk the clunker.

“That’s something we’re watching very closely,” said NHTSA spokesman Rae Tyson earlier Thursday. “We need to make sure that there’s enough money in the system to cover the transactions that have already occurred. We certainly don’t want dealers to get stuck.”

The plan was officially launched on Monday, but Congress allowed dealers to start taking trades after July 1. NHTSA requires dealers to get several pieces of information from buyers, including proof of insurance and registration, and disable clunkers by destroying its engine before applying for reimbursement.

Joe Serra, owner of Serra Automotive Group in Grand Blanc, Mich., said the system for submitting deals simply didn’t work.

“Their capacity to accept the applications is not adequate,” Serra said. “Dealers are spending all day trying to submit the applications … I have not spoken to one dealer that has received approval, and or has been funded, for even a single transaction.”

Ken Czubay, Ford Motor Co.’s vice president of U.S. sales and marketing, said many Ford dealers are worried that they will be out thousands of dollars per car if they sell a vehicle to the consumer, disable the engine, and find out later the funding has been exhausted.

“I think it was a well-intended program … and frankly the program at this very early stage has to be viewed as a huge success” Czubay said. “We are going to be working with the government to say, are we accomplishing all the things we want?”

Several Michigan lawmakers have vowed to press for more money for the program, which had originally been set for $4 billion. But Sen. Dianne Feinstein, D-Calif., has said she would block any additional money unless the program was changed to boost the gains in fuel economy between old and new models.

Federal officials also said that any deal agreed to before changes made in a federal database of mileage figures last Friday would be honored by the government. The U.S. Environmental Protection Agency updated its data on 30,000 old models, disqualifying 76 models that had previously met the program’s standards of getting no more than 18 mpg.

Deals made after Friday would have to rely on the updated data - if they can get in.

There are two comments on this story. Click here to view comments >>

Get stories like this in a free daily email