The popularity of the federal cash for clunkers incentive has drained U.S. dealer lots of vehicles.

Preliminary inventory reports for Aug. 1 indicate unsold vehicles fell below 2 million units– the lowest figure since at least 1992, when the Automotive News Data Center began combining inventory figures for cars and light trucks.
The July 1 figure, 2.2 million units, already was the lowest monthly inventory mark since 1992.Because the annualized selling rate rose in July, inventories on a days-supply basis fell sharply. Chrysler Group shed 58,600 units last month or 30 percent, and its days supply fell to 40, from 71 on July 1.

Ford Motor Co.’s inventory slid to 48 days, from 57 on July 1. General Motors was at 64 days, down from 82;, Toyota Motor Sales U.S.A. was at 29, from 47; and Hyundai-Kia was at 26 days, down from 49.

Data are not yet available for American Honda Motor and Nissan North America. But, combined, GM, Toyota, Ford, Chrysler and Hyundai-Kia cut inventories by 325,400 units in the past month.

Dealers are scrambling to replace models in short supply.

“Inventories are the lowest I have ever seen,” said Gordon Stewart, president of Stewart Management Group in Harper Woods, Mich. “We are scrambling to buy cars from other dealers. We are parking late-model used cars in spaces where new vehicles are normally displaced just so we look like we are still in business.”

Stewart said he got a “trickle”" of vehicles from GM this week. He said it will take several months for dealers to build up a 60-day inventory.

Arlena Sawyers contributed to this report

Editorial – LA Times

After some initial resistance, the Senate appears poised to approve a House bill that would refuel the federal “cash for clunkers” program with $2 billion for additional subsidies. It may be the politically expedient move, but it’s the right one. The program is boosting economic activity at a time when consumer confidence has been slipping again, threatening to slow the economy’s nascent recovery.

Launched with $1 billion from the economic stimulus package enacted in February, the program offers new-car rebates to vehicle owners who agree to scrap a drivable car getting 18 miles per gallon or less. The rebate is $4,500 if the new car gets at least 10 more miles per gallon than the scrapped one; otherwise, it’s $3,500. (The program also applies to vans, trucks and SUVs, with different mileage thresholds.)

The rebates have been wildly popular, and why not? The program provides a windfall to car buyers with decrepit trade-ins. Dealerships love it too — not only is it driving up sales, but the strong demand for rebate-eligible cars obviates the need for deep discounts. Critics argue that it makes little sense for the government to pay people to destroy things in order to buy new ones. They also note that car-buying tends to increase in the late summer without subsidies, as manufacturers and dealers try to clear out the current year’s models.

These are valid concerns, yet they don’t trump the benefits the rebates are providing to the economy as a whole. Auto purchases are important because they sustain not just manufacturers and dealers but a broad network of businesses that support them. Despite the popularity of foreign brands, more than half the cars purchased with the rebates were built in the U.S. Just as important, the rebates are prompting people to spend more money now, when the economy needs a boost. That spending, in turn, has delivered a jolt of positive economic news — witness Tuesday’s report that Ford’s sales jumped in July, its first year-over-year increase since 2007. As icing on the cake, the average purchase has been yielding a 60% improvement in fuel economy (from about 15 mpg to 25), which helps justify scrapping cars that could still be driven.

That’s why it makes sense to provide more cash for rebates, with two caveats. Congress shouldn’t provide any additional money after the $2 billion — it’s a temporary stimulus program, after all, not a new entitlement. And the money should come out of the initial $787 billion in the stimulus package. The administration estimates that only a fourth of the money will be spent in 2009 — reason enough to shift funds into a program that’s working today.

by Neil Roland

August 3, 2009 – 3:38 pm ET

WASHINGTON — The Obama administration is urging the Senate by Friday to approve $2 billion in new “cash for clunkers” funding on grounds that the program has improved fuel economy, helped the Detroit 3 and reduced consumer gas costs.Transportation Secretary Ray LaHood, Energy Secretary Steven Chu, and EPA Administrator Lisa Jackson plan to present the new data to senators in a letter today and offer to brief them further, an administration official said. To keep the program going this weekend, the administration needs action by Friday before the Senate adjourns. “If it doesn’t happen this week, it’s unlikely that we’ll make it to the weekend with a program that can continue,” White House spokesman Robert Gibbs told reporters today. The administration today also distributed a preliminary analysis to reporters which says that Clunkers deals are increasing fuel economy by 61 percent as of Aug. 1. The lobbying effort — begun before a bill that passed the House last week has been introduced in the Senate — seeks to address environmental concerns raised by Sens. Dianne Feinstein, D-Calif., and Susan Collins, R-Maine. It also seeks to counter fiscal objections raised by Sen. Claire McCaskill, D-Mo., and Republican Sens. John McCain of Arizona and Jim DeMint of South Carolina. The Senate probably won’t consider the House bill today, spokespersons for leaders of the chamber said. The Senate won’t return until after Labor Day. Gibbs reaffirmed comments made by LaHood on Sunday that the administration will commit to funding dealers’ transactions already in the pipeline only until the Senate makes a decision on the legislation. If the Senate doesn’t pass the measure, the administration will suspend the Clunkers program, LaHood said. The analysis distributed to reporters today shows that new vehicles purchased under the $1 billion program, mostly cars, get an average of 25.4 mpg while trade-ins, mostly trucks, average 15.8 mpg. “The program is working far better than anyone anticipated at moving consumers out of old, dirty trucks and SUVs and into new more fuel-efficient cars,” according to the one-page paper. The improvement in fuel economy will lower oil consumption, reduce air pollution and lower consumer gasoline expenses by $700-$1,000 a year, the report said. In addition, about 47 percent of consumer purchases under the program have been from the Detroit 3 since the program began July 1, exceeding the companies’ 45 percent market share, the fact sheet says. The Ford Focus has been the top-selling vehicle under the program, according to the analysis. The administration’s latest figures were based on 80,500 transactions filed by dealers from Friday, July 24 to Saturday, Aug. 1. The number of transactions more than tripled from the 22,782 transactions that had been filed as of last Wednesday, July 29, according to Transportation data. With consumer credits paid by dealers averaging about $4,200 as of last Wednesday, the latest figures suggest that about $338 million in rebates had been applied for by dealers as of Saturday. LaHood said Sunday that, along with a huge backlog of unfiled dealer rebate applications, the original $1 billion federal fund would be exhausted as of this past weekend. Under the program, consumers can qualify for $3,500-$4,500 credits by trading in cars and light trucks for new, more fuel-efficient vehicles. Dealers pay the credits and file for federal reimbursement. Feinstein and Collins said last week they will vote against more funding unless the legislation is changed to stiffen fuel economy standards. Aides with the two senators plan to meet today with Transportation officials today to review the new data, said Collins spokesman Kevin Kelley. Collins will defer a decision on her legislative plans until after the meeting, he said. McCain opposes “the program and the additional infusion of $2 billion to the program,” his spokeswoman Brooke Buchanan said. The Arizona senator does not plan to filibuster the legislation, she said. DeMint said yesterday: “The role of the federal government is not to run the used car business.”

Source: Automotive News

by Neil Roland

WASHINGTON — The Obama administration will fund the cash for clunkers program until the Senate decides whether to add $2 billion to the original $1 billion fund that is likely to be depleted this weekend, U.S. Transportation Secretary Ray LaHood said today. He said the administration would honor dealer rebate applications filed at least through Tuesday, Aug. 4. If the Senate doesn’t expand funding next week, the program will be suspended, LaHood said. “We will continue the program until we see what the Senate does, and I believe the Senate will pass this,” LaHood said in a C-SPAN interview. The Senate is meeting this week before breaking for a month-long recess to consider the $2 billion funding approved by the House last week. LaHood sought to address dealer concerns that the exhaustion of funds would leave them holding the bag on deals that had been completed with customers. “Anything that’s in the pipeline will be paid,” he said. LaHood did not say where the administration would get the money to fund any deals made this week if the Senate fails to provide new money and the program is suspended. The National Automobile Dealers Association reacted warily. “I take the secretary at his word, but we still urge dealers to use caution when doing cash-for-clunkers transactions,” NADA spokesman Bailey Wood said today. As of this weekend, about 250,000 vehicles will have been sold under the clunkers program since it began July 1, LaHood said. The government will have committed all $1 billion in the fund to repay dealers for $3,500-$4,500 credits given to consumers, he said. The program was enacted to fuel slumping auto sales and increase the fuel economy of vehicles on the road. He urged the Senate to pass the House bill without changes, so that the program continues as it has been through Nov. 1. “Hey, the program’s working,” the Transportation secretary said. One Republican senator, Jim DeMint of South Carolina, has urged a slowdown in congressional deliberations. Sens. Dianne Feinstein, D-Calif., and Susan Collins, R-Maine, have together called for a tightening of fuel-economy standards in the program and an expansion of allowable purchases to include used cars. LaHood said 62 percent of the trade-ins were trucks, and most of these customers were buying new cars with much better mileage. “In a way I think we’re meeting that metric that [Feinstein and Collins] would like,” he said. Any Senate changes in the House bill would have to be submitted again for a vote of the House, which is in recess until after Labor Day. LaHood acknowledged delays in processing dealer rebate applications due to technical and bureaucratic problems. He said his staff was meeting with Citigroup, the private contractor handling the dealer claims, in New Jersey today to try to make sure the contractor has enough employees to process the high volume of applications. He predicted that the dealer filing backlog would be eased by the end of next week.

Source: Automotive News

by Corey Boles

WASHINGTON — Transportation Secretary Ray LaHood said the Obama administration would honor any “Cash for Clunkers” car sales through Tuesday, but warned that unless the Senate approves a $2 billion funding extension this week, the administration would be forced to pull the plug on the popular program.

“What I’m committed to saying this morning is that any deal that is made tomorrow or the next day and is in the pipeline will be reimbursed,” Mr. LaHood said, in an interview on CSPAN’s The Newsmakers program Sunday morning.

Mr. LaHood said the chaos in the clunkers program late last week was due to processing errors at the outside contractor hired by the Department of Transportation to administer the plan, Citigroup Inc.

Just six days after the clunkers program went live, it became apparent to Department of Transportation officials that they didn’t know how much of the $1 billion allocated to the plan had been spent. There was a scramble Thursday, where initially lawmakers were told by officials the program would be suspended at midnight, only for the White House to reverse course several hours later and insist the program wouldn’t be suspended.

The clunkers program offers subsidies of up to $4,500 to people to trade in older, heavier-polluting vehicles, for new, more fuel efficient ones.

Dealers are expected to include the subsidies in the cost of the car, and be reimbursed afterwards by the federal government. But many dealers reported that the clunkers Web site would not allow them to submit applications, and fears were expressed that dealers would be on the hook if the $1 billion was exhausted.

Mr. LaHood pledged to resolve the backlog of several thousand applications immediately.

“We are fixing this today,” he said.

The fact that Citigroup, already much maligned due to its heavy involvement in the bursting of the U.S. housing bubble, was the culprit in this situation will not come as good news for executives at the beleaguered bank.

Mr. LaHood expressed confidence that Senate lawmakers would act to approve the $2 billion extension, but made it clear if they failed to do so, the administration would end the clunkers program.

Addressing concerns held by some environmentally friendly Senate lawmakers that the program as currently structured doesn’t do enough to take heavy polluting vehicles off the road, Mr. LaHood said the administration believed the program was working fine as is.

At least two senators have publicly stated they will oppose any extension of the clunkers program unless action is taken to make it more environmentally rigorous.

To add to the sense of urgency, the Senate is only scheduled to be in session for one more week before lawmakers take a month-long summer recess. This week, they are aiming to hold a confirmation vote for Judge Sonia Sotomayor’s nomination to the Supreme Court, complete work on a spending bill to fund the Department of Agriculture through fiscal 2010 and possibly take up a bill creating a tourism promotion authority. This crowded schedule doesn’t leave much room for what is likely to be a rigorous debate about whether or not to renew the clunkers program.

Source: The Wall Street Journal – WSJ.com