Is 'Cash for Clunkers' Program A Victim of Its Own Success?

Is "Cash for Clunkers" becoming a victim of its own success?

As more car buyers take advantage of the program—which offers rebates of $3,500 or $4,500 for trading in older vehicles for new, more fuel-efficient models—the federal government is struggling to reimburse dealers that shoulder the rebates up front.

Woman looks at new Toyota Camry on dealer lot
Woman looks at new Toyota Camry on dealer lot

The government is so far behind that hundreds of auto dealers in the New York area have withrawn from Cash for Clunkers,citing delays in getting reimbursed.

Earlier in the day, AutoNation CEO Michael J. Jackson told CNBC in a live interview that the government owes his company about $45 million in rebates from the program, but that he still has faith in it.

"The program is succeeding on every level, except for this administrative log jam that we have at the moment, which I am very confident we will get get fixed," Jackson said..

Transportation Secretary Ray LaHood, whose department administers the program, said Wednesday that dealers will be repaid for the clunkers deals they have completed.

"I know dealers are frustrated. They're going to get their money," LaHood told reporters.

He said the Obama administration would soon announce how much longer the $3 billion car incentive program will last.

The Greater New York Automobile Dealers Association, which represents dealerships in the New York metro area, said about half its 425 members have left the program because they cannot afford to offer more rebates. They're also worried about getting repaid.

"(The government) needs to move the system forward and they need to start paying these dealers," said Mark Schienberg, the group's president. "This is a cash-dependent business."

Dealers pay the rebates out of pocket, then must wait to be reimbursed by the government. But administrative snags and heavy paperwork have created a backlog of unpaid claims

Schienberg said the group's dealers have been repaid for only about 2 percent of the clunkers deals they've made so far.

Many dealers have said they are worried they won't get repaid at all, while others have waited so long to get reimbursed they don't have the cash to fund any more rebates, Schienberg said.

"The program is a great program in the sense that it's creating a lot of floor traffic that a lot of dealers haven't seen in a long time," he said.

"But it's in the hands of this enormous bureaucracy and regulatory agency," he added. "If they don't get out of their own way, this program is going to be a huge failure."

Auto dealers have made deals worth $1.81 billion under the program, according to government data released Wednesday. That represents 435,102 clunker deals submitted by dealers to the online system the government set up to process rebate requests.

—AP contributed to this report