Cash for Clunkers Runs Out of Cash

(MoneyWatch)  The "Cash for Clunkers" program, formally known as the Car Allowance Rebate System (CARS), is only four days into handing out money and--like GM and Chrysler--it is already basically bankrupt, putting the Obama Administration into an incredibly embarrassing situation. At presstime, the program was still in place as Congress sought more funding for it. Indeed, if Congress doesn't add more money it would have to face hostility from both the public and the dealers it had left out on a limb.

Fellow BNET Autos blogger Jim Henry and I will post further developments later today as they become available. The official CARS website offers none of this turmoil--the doors are open for business, it says.

The problem is that, right now, nobody seems to know how exactly many deals have already been made, though the Transportation Department thinks it's over 250,000. The low-ball $1 billion in funding is unlikely to be enough for more than about 215,000 transactions. (The accounting is inexact, because there are two rebate amounts, $3,500 and $4,500).

Some 16,000 dealers were eligible for Cash for Clunkers, and the National Automobile Dealers Association estimated each one could sell around a dozen cars and keep within the $1 billion limit. But some dealers made many more deals than that: Major Honda dealer Paragon (in Queens, New York) said as early as Tuesday it had already closed on 23 such transactions.

GM said in a statement, "We hope there's a will and a way to keep the program going a bit longer. Any doubt that the program would jump-start auto sales is completely erased." The White House said it was working to assess the situation to save "what is obviously an incredibly popular program." Press Secretary Robert Gibbs said all existing CARS deals would be honored--which will probably demand an additional cash infusion.

In a breaking development, Senator Carl Levin of Michigan said the program will run at least through today. It's existence after that "depends on whether the administration can find any money."

The program has, as GM noted, definitely jump-started auto sales. July auto sales of light vehicles "appear to have received a nice boost over the past few days" from the CARS program, said Barclays Capital. As Business Week estimated, the annualized selling rate in July would translate to 12 million sales. As of Thursday afternoon, it estimated a "take rate" of 35,000 in less than four days--but the actual rate may have been much higher.