"Cash for Clunkers": "Ingenious" or Blip?

In this July 27, 2009 photo, a woman shops for a car at Springfield Auto Mart in Springfield, Vt., a dealer for Buick, Pontiac and GMC. Above her is a car that was dumped in a dumpster as a visual promotion for the government cash-for-clunkers program. (AP Photo/Rutland Herald, Vyto Starinskas) AP Photo

The House of Representatives had to rush to approve an extra $2 billion for the "Cash for Clunkers" program Friday, as the initial $1 billion set aside for rebates to car buyers was quickly running out amid heavy demand.

The Senate is expected to take up a similar measure this week.

Under the program, motorists purchasing new, more fuel-efficient vehicles can get $3,500 to $4,500 from Uncle Sam toward their deal if they trade in their old gas-guzzlers.

The additional funds are meant to keep "Cash for Clunkers" going through October.

The response has been so good, car dealers have been clicking their heels with excitement. One, in Westchester, N.Y, north of Manhattan, told CBS News traffic in his showroom is up 200 percent in the few days since "Cash for Clunkers" has been in place.

On "The Early Show Saturday Edition," Transportation Secretary Ray LaHood sought to reassure dealers and prospective customers alike that the money for the program will be there after the weekend, telling co-anchor Chris Wragge there's "not one bit" of cause for concern, adding, "We are encouraging Americans who want a new car and want to turn in their old car to go to their car dealer this weekend and the money will be there for either $3,500 or $4,500.

"No one should worry. Go out and buy a car."

LaHood said he belives the program will last through August. "We believe that this initial surge in the number of people who came in to the showrooms will probably taper off a little bit, and we believe $2 billion gets us through the month of August," he said.

He lauded "Cash for Clunkers," calling it "a lifeline for the car manufacturers, and it's a lifeline for these dealers whose salesmen haven't been making sales for a long time, and it really is an opportunity for car dealers all over America to sell these automobiles where they've had large inventories.

"This is the stimulus program that has worked better than any other stimulus program that was conceived. It's a very ingenious idea that has really worked very well for Americans. ... The program does work. It's not that complicated; car dealers are getting their money and the driving public are getting new cars, and this is a win-win for America. It's a win-win for our economy."

Still, while analysts expect auto sales from July to show a 16 percent gain over those in June when the numbers come out, that would be down more than 10 percent from July 2008. And though an estimated 224,000 clunker trade-ins took place in the first few days of the program, some experts predict the sales bounce will be short-lived, reports CBS News Correspondent Kelly Wallace.

Edmunds.com CEO Jeremy Anwyl told CBS News that, because there are only so many people who would qualify under the trade-in program, "after that initial flurry, I think we'll see that those deals are done and then there won't be anything else to come in after that.

"These are temporary phenomenons; they don't indicate sort of a fundamental return of confidence, and that's what is ultimately going to drive a return to more normal sales levels," he said.

Wallace points out that some observers feel the actual demand for "Cash for Clunkers" is fairly thin - that there are a limite dnumber of consumers who can qualify for the program, and many of them have already taken advantage of it - raising the question of whether, in the end, an extra $2 billion will even be fully used.
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