How much will 'cash for clunkers' cost?

The Obama administration's "cash for clunkers" program apparently blew through more than $1 billion in a week. Now, the U.S. Congress is scrambling to pass $2 billion in additional funding. But will that be enough?

Officials from the automotive industry and the Obama administration were clearly caught of guard by the huge popularity of the "clunkers" deal, which gives people incentives to trade in their old, less fuel-efficient vehicles for new, greener models. The problem is that the rules are so convoluted many people and car dealers still don't understand which cars qualify for the program and which don't.

CNBC reported that the original sponsors of the bill requested $4 billion. Critics argue that the program will only encourage people to buy cars that they would have purchased anyway, artificially boosting the economy.

The costs may rise as consumers become more confident and realize that the program -- which gives people about $4,500 in rebates -- makes economic sense. Mike Jackson, the CEO of AutoNation Inc (AN), told CNBC that many customers coming into the world's largest automotive retailer had good credit.

"We also expect the 'cash for clunkers' program to stimulate new vehicle sales," said Jackson, whose firm reported a decline in second quarter profit. "Going forward, we expect a gradual improvement of new vehicle sales beginning in the second half of 2009 and intend to increase our inventory of vehicles in a disciplined manner to meet demand."

Economic conditions, though, are hardly robust. Many economists expect unemployment to top 10 percent by the end of next year. U.S. car sales in June fell 28 percent. Though the decline was the narrowest in nine months, the market is nowhere near strong enough to sustain the Big 3, which are not going to top 10 million in car sales. It's little wonder that the Obama administration is so keen on the program.

As the Associated Press reported, press secretary Robert Gibbs sought to assure consumers that the program is still running and will be alive "this weekend." The House already has passed the funding.

But Gibbs forgot to add that people should "act now because supplies are limited."

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