Obama Administration Hopeful on "Clunker" Extension

Cash for Clunkers

WASHINGTON August 2, 2009; John Crawley writing for Reuters reported that the Obama administration expressed optimism on Sunday that the U.S. Senate will extend the federal "cash for clunkers" auto sales incentive program, but warned it would be suspended at midweek without new funding.

"This has been a wildly popular program and given new life to auto dealers," Transportation Secretary Ray LaHood said on an interview on C-SPAN. "This has worked very, very well."

LaHood was cautious in his remarks since some senators have raised concerns about a proposed $2 billion extension, and questions emerged on Sunday of a possible Republican attempt to block it outright.

But he said the administration anticipates members to follow the House of Representatives, which acted swiftly on Friday, and finalize congressional approval of new funding for the measure that gives consumers up to $4,500 when they trade in old cars for more fuel efficient new ones.

"I believe the Senate will do this," LaHood said.

An enormous consumer response to the "clunkers" program took the administration by surprise, creating a massive logistical log-jam for regulators as they scrambled in recent days to determine how many sales were facilitated by the stimulus and whether there was money remaining.

Government and industry officials said on Friday that close to 250,000 cars were sold on "clunker" trade-ins with business accelerating in the final week of July. The end of the month is traditionally the busiest period for dealers as they build incentives to try to meet sales quotas.

Analysts see the program's quick success as turbocharging July sales for an industry wrestling with a sharp decline in business largely due to recession.

Mike Jackson, chief of executive of dealer group AutoNation, said on Friday it was too early to quantify the impact of "cash-for-clunkers," but said it was certain to drive sales above 10 million and to the highest levels of the year.

Automakers report July sales this week.

Ford Motor Co, the only domestic manufacturer working without government bailouts and the only one of the three Detroit companies not to restructure in bankruptcy this year, is expected to benefit strongly from a brighter consumer outlook aided by "clunkers."

Business at dealerships was brisk over the weekend with the federal stimulus driving new traffic to showrooms and boosting sales overall, according to the National Automobile Dealers Association.

Bailey Wood, legislative director for the trade group, said consumers are opting for the maximum benefit and there remains a large backlog of requests for the government to approve transactions. Dealers, however, are being cautioned that money may not be available to fulfill all orders as the week progresses.

The "clunkers" program was designed in part to help General Motors Corp and Chrysler Group recover from bankruptcy, but officials said they had no information yet on how the incentive affected individual companies.

Most of the old trade-ins have been sport utilities, pickups and other light trucks, and a snapshot of sales early last week showed consumers favoring passenger cars, which as a class get better fuel mileage than heavier trucks, the Transportation Department said.

Trade-ins cannot be more than 25 years old or get more than 18 miles per gallon in most cases.

LaHood said the "clunker" program would run through Tuesday at least and any transactions in the pipeline would be paid, putting additional pressure on senators to act quickly.

The original "clunkers" legislation narrowly passed the Senate in June, raising uncertainty whether there will be enough support this time. But the House passed the $2 billon package on Friday with 316 votes in favor, a sentiment LaHood said should be noted by the Senate.

Nevertheless, a handful of senators want stronger terms for raising fuel efficiency and lowering emissions. Others strongly oppose new money for an industry that has already received more than $80 billion in aid since January.

"This is crazy to try to rush this thing through again," Republican Senator Jim Demint said on "Fox News Sunday." "We've got to slow this thing down."

The Senate cannot amend the House-passed funding measure since the House has left already for its August break.

Additional reporting for Reuters by SoYoung Kim in Detroit; Editing by Leslie Adler