Cash for Clunkers: What to Expect Now

It’s going to be a wild weekend at the car dealership.

The Cash for Clunkers program is still up and running -- at least for a little while longer. The White House announcement affirming the continuation of the Car Allowance Rebate System (CARS) came just hours after it was revealed that the program is out of funds, which sent thousands of car dealers and potential buyers into a panic.

On Friday the House of Representative voted to come up with an additional $2 billion in emergency funding to keep the program up and running though the weekend -- and perhaps beyond. After all, the Senate won't vote on additional funding for the program until sometime next week.

In the meantime, here’s what clunker owners who haven’t taken advantage of the program need to know:

Can I still take advantage of the program this weekend?
Yes. The White House and the House vote assure that the program will remain in effect for now. But whether individual dealerships will continue to honor the program is another question.

Marvin Hedrick, director of finance at Chrystal Motor Cars in Spring Hill, Fla., says his dealership will likely stop doing “clunker” deals at 6 p.m. Friday. “We have lots of money pending,” he says. That's because although the program officially started July 1, the rules weren’t finalized until July 24, meaning many dealerships “fronted” their own cash to complete sales under CARS and must now be reimbursed by the program. The uncertainty of the program’s future may cause some dealerships to bow out.

If my dealer still honors Cash for Clunkers, is this weekend a good or a bad time to buy?
Expect a crowded showroom, says Philip Reed, an analyst with car information web site Edmunds.com. “It’s analogous to running to the store to stock up on bottled water when you hear that a storm is coming,” he says.

The bad news for car buyers is that their negotiating power decreases as showroom traffic increases. That’ll be especially true this weekend -- so unless you have a clunker to get rid of, you may want to stay home, Reed says.

If you do have a clunker, get multiple quotes on the replacement from multiple dealers, Reed says. Some dealers may try to use the program to get you to pay more than you normally would. “Two or three weeks ago, a lot of cars were selling at invoice price. Now, because of clunkers, they’ve jacked the price up to [the manufacturer's suggested retail price].”

Are there fewer choices because of the increase in car sales?
There’s ample supply to meet the demand for clunker replacements, says Mark Cannon, spokesman for AutoNation (AN), the nation's largest chain of auto dealerships.

However, Reed says that inventory levels appear to be dropping sharply. “This weekend, inventory will probably be better than going forward,” he says. “Some of the more desirable replacement cars are running low already.”

Many dealerships post their inventories online, so do some research before heading out to go car shopping this weekend.

If CARS were to end, would auto makers try to make up for it with better incentives going forward?
The CARS program has created the momentum in sales that manufacturers need, Reed says, so chances are that even if the program ended sooner than planned, they would try to replicate it with incentives of their own.

But farther out Detroit will focus on limiting production so that fewer incentives are necessary in the first place, says David Whiston, an equity analyst with investment research firm Morningstar. “This year it’s definitely a buyer's market,” Whiston says. “But over the long run, Americans need to adjust their mindsets to not expect auto makers offering huge incentives.”