BREAKING: House Adds $2 Billion To Cash-For-Clunkers, Senate Is Next

July 31, 2009


Well, that was quick. Just four days after the launch of the Car Allowance Rebate Systems (CARS) program, better known as "Cash for Clunkers," it appears that it may be suspended due to its own success.

Apparently eager buyers have blown through the $1 billion allocation, and dealers are worrying they won't get paid for clunkers they've already taken in and disabled.

We first saw the story late last night from our cohorts at Motor Authority. Then the alerts started flooding in. This morning's news carries rumors that the US Transportation Department will suspend the program, although there's been no definitive statement yet.

Late yesterday, the White House said, "We are working tonight to assess the situation facing what is obviously an incredibly popular program."

[UPDATE 4, 1:30 pm Eastern:  Numerous tweets (here, here, here, here, and here) are reporting that the House of Representatives has passed HR 3445, voting 316 to 109, to reallocate another $2 billion to Cash-for-Clunkers from an energy-loan guarantee program. The US Senate will now have to vote on the issue next week.]

[UPDATE 3, 11:30 am Eastern:  According to The Detroit News, an emergency measure to allocate another $2 billion to the CARS program (H.R. 3445) was introduced in the House of Representatives today.

The funds would be reallocated from an energy loan-guarantee program, part of February's $787 billion stimulus package, and House Majority Leader Steny Hoyer (D-MD) is said to be working to get unanimous consent among House members to approve the bill before the August recess.]

[UPDATE 2, 11:15 am Eastern: According to The New York Times,  White House spokesman Robert Gibbs said the administration plans to meet with Congress to discuss methods of keeping the CARS program going, though he wouldn't say how long it could continue without new funding.

But, he said, the program will continue at least through the weekend.  “If you were planning on going to buy a car this weekend using this program, the program continues to run,” he said. “If you meet the requirements of the program, the certificates will be honored.”]

[UPDATE 1, 9:40 am Eastern: According to Automotive News (subscription required), the program is still operating as of this morning and the White House, the Department of Transportation, and Congress continue to meet to assess the situation.]

End or suspend?

Unless Congress and the White House can quickly agree on a new source of funds to extend the program, it may have to be suspended or ended today. Adding to the challenge, Congress will recess for August, leaving just one day to approve any additional funds.

The confusion stems from conflicting reports over how many clunkers have already been traded in. Dealers have complained bitterly about confusing and complex paperwork (the program's rules run 135 pages) and, worse, a website that simply seized up under the load of registrations and reimbursement requests.

Late yesterday, the Transportation Department said it had already paid out $221 million to dealers. Officials also claimed that any problems with the website had been resolved.

But John McEleny, head of the powerful National Auto Dealers Association (NADA), told reporters most of the $1 billion in funding had already been used up, based on a dealer survey showing a huge backlog of reimbursement requests that would take the total to almost 250,000 tradeins.

Dealer fear: No cash for worthless hulks

The original program had been planned for $4 billion, but Congress cut the allocation to $1 billion when it approved the program in June. That amount was to take the CARS program through November 1.

Dealers fear that if they complete tradein deals that involve clunkers, they won't get reimbursed for vehicles whose engines they have already had to disable under the rules.

The White House statement attempted to reassure dealers that all valid tradeins would be reimbursed. "Auto dealers and consumers should have confidence that all valid CARS transactions that have taken place to-date will be honored," said last night's statement.

Some have called the program a highlight of the Administration's various stimulus efforts. "This is simply the most stimulative $1 billion the federal government has spent during the entire economic downturn," said Representative Candice Miller (R-MI).

Rules: 22 mpg or more for cars

Under the program, owners of 1984-2002 vehicles with a combined EPA mileage rating of 18 miles per gallon or less qualified for a $3,500 voucher towards the purchase of a new car rated at 22 mpg or better. The maximum voucher of $4,500 was available to those who bought cars rated at 10 mpg (or more) higher than the tradein.

Trucks used a different system; the replacement had to be rated at 18 mpg or better, and also be 2 mpg more efficient than the tradein to qualify for a $3,500 voucher. Improving mileage by 5 mpg or more garnered the full $4,500. will update this story during the day as news develops. Check back often if you're considering trading in your clunker.

1994 Buick Park Avenue, by Flickr user Rienk Mebius

1994 Buick Park Avenue, by Flickr user Rienk Mebius

[COVERAGE: Motor Authority; Detroit News; The New York Times; The Washington Post; Wall Street Journal; and many more]

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