Page last updated at 23:20 GMT, Thursday, 20 August 2009 00:20 UK

Brakes put on US scrappage scheme

Ford vehicles at a Michigan plant
US car sales rose in July

The US government says that a $3bn (£1.8bn) car scrappage scheme will end next Monday when funds run out.

The Car Allowance Rebate System (Cars), dubbed the "cash for clunkers" plan, has been seen as an industry life-line.

So far, more than 450,000 cars have been sold through the programme, representing $1.9bn.

The programme was initially only allocated $1bn but a further $2bn was injected earlier this month after a boost in US car sales.

The deadline is designed to give dealers enough time to complete sales and submit applications to the government for rebates.

Some analysts expressed concern that the scheme, which has boosted car sales since it was unveiled last month, was being shelved too early.

"My fear is that ending it now could prove to be very premature... my fear is that sales in September will fall back sharply," said Howard Wheeldon at BGC Partners.

CASH FOR CLUNKERS

Car owners can gain a voucher worth $3,500 for trading in a vehicle getting 18 miles per gallon or less for a new car getting at least 22 mpg

Car owners can gain vouchers of $4,500 for those trading in a car getting 18 mpg or less in exchange for a model that gets at least 28 mpg

The Car Allowance Rebate System is based on similar schemes in the UK, France, Germany, Italy and Spain that have boosted new car sales.

Under the terms of the scheme, owners of old cars and lorries gain up to $4,500 towards a new vehicle in exchange for their old model.

The "clunkers" programme was inspired by similar schemes in Europe.

Industry boost

Car industry analysts JD Power predicted that US vehicle sales would pass one million in August - for the first time in 12 months.

"This programme has been a life-line to the automobile industry, jump-starting a major sector of the economy and putting people back to work," Transportation Secretary Ray LaHood said.

"At the same time, we've been able to take old, polluting cars off the road and help consumers purchase fuel-efficient vehicles."

Earlier this week, a group representing about 20,000 new car dealers in the US warned that those who accepted further sales under the scheme risked not being paid back the rebates they had already given customers.

There have been complaints that delays in making reimbursements have added to the strains on dealers already struggling amid tight credit and poor car sales.


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