Car shoppers have until Monday night to take advantage of lucrative Cash for Clunkers rebates from the government, and the Obama administration is hoping for a smooth ending to a program that has spurred auto sales but created headaches for many auto dealers.
The popular program will end at 8 p.m. EDT Monday after burning through much of its $3 billion in funding in just a month. All new deals will have to be completed and dealers must file their paperwork by the deadline in order to get repaid for the big incentives.
President Barack Obama and administration officials declared the program a success Thursday, saying it has revitalized the ailing auto industry and finally brought reluctant car buyers back to dealership lots. Originally a $1 billion program, Cash for Clunkers was boosted to $3 billion in early August after heavy customer demand nearly depleted its funds in just one week.
Transportation Secretary Ray LaHood said the program has been "a lifeline to the automobile industry, jump starting a major sector of the economy and putting people back to work." He said the department was "working toward an orderly wind down of this very popular program."
But it has also created problems for dealers, many of whom have yet to be repaid for the clunker deals they have made. Under the program, dealers take rebates of $3,500 or $4,500 off the price of a new car in return for older, less fuel-efficient trade-ins that are sent to the scrap heap. They then must submit a 13-page application with proper documentation of the sale in order to get repaid.
That has left many dealers with unpaid claims worth hundreds of thousands of dollars.
"It has brought in some traffic that we would not have had, but if you don’t get paid, it is all for naught," said Alton Owen Jr., sales manager at Owen Ford in Jarratt, Va. His dealership won’t be offering the clunker deals this weekend because it has yet to be repaid for 21 sales.
Obama and LaHood pledged that dealers will get their money back. But government data shows that many claims are still outstanding. As of Thursday, 457,000 sales worth $1.9 billion had been received. About 40 percent of those claims have been reviewed, but only $140 million, or about 7 percent of the claims dealers submitted, have actually been paid.
Government officials said there were no plans to extend the program again. The Monday deadline was set to avoid surpassing the $3 billion funding level, given deals that may be made this weekend and those that are still in the pipeline for approval.
Applications for rebates will not be accepted after the Monday deadline, administration officials said. The Transportation Department cautioned dealers about making sales this weekend, advising them to make sales only where the buyer’s paperwork is clearly in order and can be submitted immediately for repayment. Dealers will be able to resubmit rejected applications after the deadline.
John McEleney, chairman of the National Automobile Dealers Association, said he remained concerned that so few dealers had been reimbursed for Clunker deals. But he said the Monday deadline should give dealers time to get their paperwork in order.
"I think if we can get a clean cutoff Monday and get everything processed by then, it will have been a pretty darned successful program," he said.
But Mike Mahalak, who runs a Dodge, Chrysler and Jeep dealership in Winter Haven, Fla., said the Monday end date could lead to a similar rush that nearly crippled the federal government’s computer systems that were set up to handle claims.
"That Web site will lock up again once everyone is cramming it again on Monday," Mahalak said. The administration has said it expanded the capacity of the computer network in an effort to improve the process for dealers.
Obama said in an interview Thursday that the program has been "successful beyond anybody’s imagination" but dealers were overwhelmed by the response of consumers. He pledged that dealers "will get their money." The administration has said it has tripled the number of staffers sorting through the paperwork.
It remains unclear whether the Monday deadline will create a new rush of sales this weekend and if dealers will continue to make deals knowing their claims have to be filed in four days.
To help cash-strapped dealers, both Chrysler and General Motors said they would begin providing cash advances to help dealers cover any cash shortfalls related to the program. The automakers said they would provide the advances for up to 30 days to dealers who have already completed a sale and that they will be available as long as the program remains in effect.
The program provided at least a temporary boost for the beleaguered auto industry and dealers.
GM announced plans to rehire more than 1,300 workers and automakers have been paying overtime to ramp up production. Hyundai recalled 3,000 workers in Alabama. Many dealers have made hundreds of sales and reported that even customers who don’t qualify for the program are visiting lots to buy new cars.
Jeremy Anwyl, CEO of the auto Web site Edmunds.com, said the government incentives could dry up sales in September and October, along with a tight vehicle inventory, higher prices for new models arriving in the fall and consumers who are focused on finding a good deal.
"It’s been a nice party for a few weeks. The hangover, I don’t think, is going to be anywhere near as much fun," Anwyl said.