WASHINGTON - The U.S. government's $1 billion cash for clunkers auto sales incentive program reached its funding limit unexpectedly after an avalanche of business exhausted its funds, an Obama administration official said late Thursday.

Auto dealers began offering government-backed rebates in early July of up to $4,500 to consumers who traded-in their gas-guzzlers for more fuel-efficient vehicles.

But the Transportation Department will need additional cash after rebates for nearly 250,000 vehicles jammed the pipeline nationwide.

The White House was working with Congress to try to extend funding as lawmakers prepared to leave town for the month of August, according to the official who was not authorized to speak for attribution.

The program was part of a congressional effort to revive slumping U.S. sales and further help domestic automakers, especially General Motors Corp and Chrysler Group that briefly went bankrupt.

Sales unexpectedly spiked this week after the government began logging transactions and approving rebates that indicated consumers were opting for vehicles that get significantly better gas mileage than the models they were trading in.

The end of the month is usually the busiest time for auto dealers and automakers that have matched the government benefit.

Initially, congressional and industry officials signaled that the program was going to be suspended late Thursday or early Friday as funding ran out.

The administration opted to keep the program in place while it sought new money. It was not clear where the administration would find additional funding in a short period of time.

We hope there's a will and a way to keep the program going a bit longer, General Motors said in a statement. Any doubt that the program would jump-start auto sales is completely erased.

An estimated 16,000 dealers were eligible for the program and each would have to sell more than a dozen vehicles at the maximum rebate to reach the government's funding limit, according to the National Automobile Dealers Association.

U.S. Senators Dianne Feinstein of California and Susan Collins of Maine said any extension of the incentive must require greater fuel efficiency and higher reductions of auto emissions.

Congress wrestled with both issues when it established the current incentive to give U.S. manufacturers a better chance of qualifying for the program.

U.S. auto manufacturers are scheduled to report their July sales next week.

It was unclear how the program that was to run into the fall was impacting sales at individual companies, including Asian manufacturers like Toyota Motor Corp. (7203.T) and Honda Motor Co. (7267.T) that make the most fuel efficient cars on the road.

Nevertheless, analysts expected the program, if utilized fully, to push U.S. sales above 10 million units for 2009, higher than the annual rate so far this year. That would represent a modest jump for an industry that has endured a severe slide in business during the recession.
(Writing by John Crawley; Editing by Philip Barbara)

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