Expanded “Cash for Clunkers” starts Monday

The National Highway Traffic Safety Administration has cleared the way for the kickoff of the “Cash for Clunkers” program. This means the long-awaited, billion-dollar federal stimulus for automotive sales will begin tomorrow when Transportation Secretary Ray LaHood opens the program with an event at NHTSA headquarters. Fuel-efficient vehicles from the major manufacturers and some members of Congress will be on display at the Washington event.

The last roadblock to the program was cleared when the NHTSA issued a final regulation detailing the process for dealers to register, get reimbursed and dispose of trade-ins (all vehicles acquired under the program must be scrapped). The agency has been trying to set up the program to reduce the opportunities for fraud.

An NHTSA spokeswoman said 1,700 dealers were already approved for the program while an additional 2,100 dealer applications are pending. Fewer than 150 dealers have been rejected.

Under the “Cash for Clunkers” program, which ends November 1, 2009 or when the authorized funds are exhausted, buyers who trade in an eligible vehicle can get a $4,500 government rebate toward the purchase of a new, more efficient vehicle priced under $45,000. The NHTSA sweetened the deal by making the $45,000 limit apply only to the base price of the vehicle. In addition, vehicles to be traded in must get 18 miles per gallon or less under the revised EPA ratings, which tend to be lower than those originally posted on the vehicle’s Monroney sticker. This change expanded the number of eligible vehicles.

Dealers will be required to destroy the traded-in vehicles’ engines by replacing the crankcase oil with a 40 percent solution of sodium silicate, a sealant used for patching radiators and mufflers, and then running the engine until it is inoperable. The NHTSA estimates this will cost the dealer no more than $30.00 and will reduce the possibility of the vehicle being re-sold instead of scrapped.

Chrysler Group has rolled out a new incentive program that offers to match the government rebate with its own $4,500 rebate. The Chrysler rebate is also available to customers not using the government program.

The industry and auto dealers hope the program will generate about 250,000 additional sales. Similar programs in Europe, though less restrictive tan the U.S. program, have been responsible for healthy increases in new car sales.