US government may wind down 'clunkers' program

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The "cash for clunkers" program set up by the US government is brilliant. It has come as close to saving the US auto industry as anything since the bailouts of Chrysler and General Motors.

But, as usual, bureaucracy screws up a good thing. The government has not been about to get dealers the money that they give their customers when the customers turn in their old cars. Many dealers can't float the difference, so "cash for clunkers" is putting them out of business. A dealer who gets 20 new buyers could be $90,000 in the hole if it pays out the full $4,500 per vehicles.

Customers have their credit, but that dealer may not be able to wait for weeks for its government check.

The National Automobile Dealers Association will meet with the government next week. It will have two things on its agenda. The first is to get dealers paid. The other is to get the program extended beyond its current $3 billion limit. Dealers may end up offering customers "clunker" deals only to find out the the federal fund has used up all of its money.

The dealers may end up being disappointed. The Wall Street Journal has found out that "The Obama administration said it will wind down its popular "cash for clunkers" incentive program on auto sales -- and may do so as soon as early September.

Why would the government walk away from such a successful program? First, it drains money from other projects in the stimulus package. The $3 billion is not new money approved by Congress. It has to come out of already allocated funds. The second is that the Administration may believe that the car industry can get back on its feet on its own. The economy seems to be recovering a bit. The 2010 models should drive interest among new buyers.

The government could be making a big mistake, especially given its huge investments in Chrysler and GM. The end to the program could cause vehicle sales to collapse back to their first half levels and auto companies could bleed red ink again. A few billion more for cash for clunkers could be money well spent.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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