Obama administration hopeful on "clunker" extension

An old car dropped in an industrial trash bin advertising the Cash for Clunkers program at Battlefield Ford in Culpeper, Virginia, August 1, 2009.

WASHINGTON (Reuters) - The Obama administration was optimistic on Sunday that the U.S. Senate would extend the federal "cash for clunkers" auto sales program, but warned the incentive would be suspended at midweek without new funding.

"This has been a wildly popular program and given new life to auto dealers," Transportation Secretary Ray LaHood said on an interview on C-SPAN. "This has worked very, very well."

LaHood was cautious in his remarks since procedural and political realities in the Senate may not allow expedited consideration of a proposed $2 billion extension that was passed by the House of Representatives on Friday by an overwhelming margin.

"This is crazy to try to rush this thing through again," Republican Senator Jim DeMint said on "Fox News Sunday." "We've got to slow this thing down."

The Senate cannot amend the House-passed funding measure since the House has left already for its August break. That is a potential problem for "clunker" supporters since some lawmakers want to change details of the program or not extend new money to help an industry that has received more than $80 billion in government assistance since January.

Senators will take their month-long break this Friday.

Nevertheless, LaHood and other administration officials praised the program and pressed for swift action on new funding for the plan that gives consumers up to $4,500 when they trade in old cars for more fuel efficient new ones.

"I believe the Senate will do this," LaHood said.

White House economic adviser Lawrence Summers said the initiative, funded at $1 billion in June with a narrow Senate majority, helped in a small but measurable way to stimulate the U.S. economy, which is mired in recession.

An enormous consumer response to the plan, intended to run through October but nearly exhausted after a month, surprised the administration, carmakers, dealers and critics late last week. Government and industry officials estimated it has facilitated nearly 250,000 sales but a paperwork logjam in recent days has slowed efforts to provide an exact accounting.

Trade-ins accelerated in the final week of July, dealers said. The end of the month is traditionally the busiest period for dealers as they up incentives to try to meet sales quotas.

LaHood said the "clunker" program would run through Tuesday at least and any transactions in the pipeline would be paid, putting additional pressure on senators to act quickly.

Analysts see the program's quick success as turbocharging monthly sales for an industry wrestling with a sharp decline in business largely due to recession. Mike Jackson, CEO of dealer group AutoNation, said it was certain to push the annualized U.S. sales rate to more than 10 million for the first time this year.

Automakers report July sales this week.

The "clunkers" program was designed in part to help General Motors Corp and Chrysler Group recover from bankruptcy, but officials said they had no information yet on how the incentive affected individual companies.

But Ford Motor Co, the only domestic manufacturer working without government bailouts and the only one of the three Detroit carmakers not to restructure in bankruptcy, said on Sunday it will report that July sales, its first year-over-year monthly gain since November 2007, were aided by a surge in "clunker" business.

"You are going to see large gains in almost every Ford product that is powered by a four-cylinder engine -- the Focus, the Fusion, Fusion Hybrid, the Escape small utility and its hybrid version, the companion Mercury products. That is where the demand was, particularly this past week," Ford chief sales analyst George Pipas told Reuters in an interview.

Business at dealerships was brisk over the weekend with the federal stimulus driving traffic to showrooms and boosting sales overall, according to the National Automobile Dealers Association.

Bailey Wood, legislative director for the trade group, said consumers are opting for the maximum benefit and there remains a large backlog of requests for the government to approve transactions. Dealers, however, are being cautioned that money may not be available to fulfill all orders.

Most of the old trade-ins have been sport utilities, pickups and other light trucks. Trade-ins cannot be more than 25-years-old or get more than 18 miles per gallon in most cases.

(Additional reporting by David Bailey and Soyoung Kim in Detroit; Editing by Leslie Adler and Richard Chang)