President Barack Obama will lobby Senate Democrats to extend the federal government’s ‘cash for clunkers’ CARS programme at a lunch meeting today as a national dealers group warned members to avoid the scheme while its future remained uncertain.


The scheme started just over a week ago but quickly ran through the initial US$1bn allocated and, according to The Wall Street Journal, the debate over whether to hand over another $2bn for the rebates “has become a microcosm of a larger political tussle over the proper role of government in stimulating the economy”.


Senate Republicans said the unforeseen early fund run-out is reason to argue that the federal government isn’t equipped to take over a large chunk of the US healthcare system, another (Democrat) Obama administration initiative also being debated in Washington.


Republicans have also criticised the CARS programme as an expensive hand out to car dealers and automakers while other needy areas of the economy are ignored. One representative last week mockingly asked a House session if the government should start subsidising citizens to buy groceries or energy saving LCD televisions.


Meanwhile, the National Automobile Dealers Association is worried members won’t get paid for deals made since the funds ran out,


“We are at this time saying that if they proceed, they do so at their own risk,” chairman John McEleney told the WSJ.


The lower House of Representatives passed a $2bn funding boost late on Friday bit there are signs of roadblocks in the Senate and the measure must pass this week before Congress starts its summer break.


According to the WSJ, the Obama administration yesterday presented data showing the incentives were improving overall vehicle fuel economy, claiming they were giving a “timely, temporary and targeted” jolt to the economy.


The Department of Transportation said preliminary figures showed the programme had boosted sales of cars averaging 25.4 miles per gallon, compared with an average of 15.8mpg for the trade-ins, which, under clunkers programme rules, must be destroyed.


General Motors has estimated 118,000 vehicles were sold in July with clunker rebates while the transportation department told the WSJ about 80,500 transactions had been processed under the programme in its first week. Of those sales, 47% involved vehicles made by GM, Ford or Chrysler, the administration said.


Ford’s FOCUS ‘compact’ was the most popular car bought using the clunkers incentive and Toyota said its Corolla compact and Prius hybrid alone accounted for 40% of the vehicles it sold with the incentives.


Dealers and automakers (including Chrysler which axed one incentive scheme after barely a week) have also added in their own top-up incentives.


There are signs the auto industry is cranking up US vehicle assembly, too. These include Hyundai putting its relatively new Alabama plant, which builds the Sonata sedan and Santa Fe SUV, back on a five-day week after running short time for months and Toyota reporting June North American production of 108,261 vehicles , the highest monthly tally since October  and almost double January’s output.


Ford, which earlier this year boosted Q3’s planned output is holding firm for now.