The U.S. Government has pacified dealers who sold cars under the Cash for Clunkers program. It has approved $500 million in reimbursements, which are to be paid by late this month.

“Cash for Clunkers,” a.k.a. the Car Allowance Rebate System (CARS), introduced by the U.S. government in late July, was a $3 billion cash incentive program. The program, ended August 24, allowed consumers to trade in their old gas-guzzling cars and trucks with a mileage of 18 miles per gallon or less for a value of up to $3,500–$4,500.

The surge of applications under the program saw dealers run out of stock for popular models such as Ford Focus, Honda Civic, Toyota Corolla and Nissan Altima. The U.S. Department of Transportation reported that as many as 690,114 new cars were sold under the program, reflecting a $2.88 billion in rebate applications, which is close to the program allocation.

However, the sales under the program left many dealers worried about not being reimbursed by the government. As of August 21, dealers had been reimbursed for just a small fraction of the billions in sales. As of August 24, about 120,000 or 17% submissions from dealers had been approved under the program.

These had led many dealers to stop Cash for Clunkers sales prematurely, either to make sure the Government reimbursed them for the rebates or because their stocks of eligible cars had dried up.

On August 22, the nation’s largest auto dealership chain AutoNation (AN) withdrew from the program to make sure it could submit the paperwork on thousands of sales to the government before the deadline. The dealer has alone sold 11,000 cars under the program as of August 20, and has estimated that the government owes it more than $45 million. The government has vouched for payment within 30–60 days.

The government has now promised to approve $100 million per day by the end of next week. Dealers will be reimbursed within 3 days of their deals being approved. To speed up the process, the government is ramping up staff.

Cash for Clunkers generated a huge response since its inception. The program revived the auto industry, which showed a 1% sales gain to 1.3 million vehicles in August, the first annual sales gain since October 2007. Sales of cars and light trucks surged 30% compared to July.

Several automakers have benefited from the program, especially the industry leaders in fuel-efficient vehicles – Honda (HMC) and Toyota (TM). Ford (F) witnessed its first sales gain for July since November 2007 due to the program.

In terms of market share, Toyota led with 19.4% of all program sales, followed by General Motors with 17.6%, Ford with 14.4% and Honda with 13%. Chrysler ended in seventh place behind Nissan and Hyundai.
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