Government considers 'clunker' IOUs

The "cash for clunkers" program has been a great success -- too successful, in fact. Some auto dealers are nearly out of cars. That poses a problem for the Obama administration. It would like the stimulus coming from the initiative to continue through August and September, but vehicle supply will undercut that.

So how can the government maintain interest in the program when buyers are becoming frustrated by lack of supply? The answer may be to hand out "clunker" IOUs, so that customers can return to dealers when the model that they want comes in.

According toThe Wall Street Journal, "Under the change requested by Reps. Candice Miller and Fred Upton, Michigan Republicans, the voucher could be redeemed even if the dealer has to order the new car from the manufacturer." This system would keep production lines up and running because of specific orders for new cars. It would also allow dealers access to financing for inventory because some of their cars have been "pre-sold."

Some of the "clunker" participants had, no doubt, already planned to buy new cars before the program kicked in. But an incentive of as much as $4,500 is large enough to attract tens of thousands of new buyers, as well. Once that incentive is gone, many potential buyers will simply keep their current vehicles to save money. The auto repair market may prosper, but the new car business will slip back into another slow period.

"Cash for clunkers" works because it hands out money to people who might not otherwise buy any car at all. That means that the $2 billion recently put into the fund to replenish it may not be the last infusion of money that the program sees.

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

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