The U.S. government said it will suspend its popular Cash for Clunkers auto rebates on Monday as the program's $3 billion budget runs dry, a month after it was launched.

The program, offering payments of up to $4,500 to people who trade in old gas guzzlers for new, fuel-efficient vehicles, will end at 8 p.m., August 24, by which time all applications for the rebates must be submitted to Washington.

It has provided a big temporary boost for both the deeply troubled auto industry and the battered U.S. economy. In the past few weeks both Ford Motor Co and General Motors Co have increased production, as some models have been in short supply.

However, the temporary nature of the program is likely to raise concerns that it may have only brought sales forward from future months, and sales could plunge again.

We've seen an overwhelming and overnight success and so much so that we've reached the point where we need to wind this program down, an administration official said on Thursday.

The goal of the wind-down is to provide a soft landing for dealers and consumers and ensure the program ends in a successful way, the official told reporters during a background briefing. The official asked not to be named.

The Transportation Department said it thought enough money would be left to continue accepting submissions until the Monday deadline, based on conservative estimates of valid transactions to date.

The announcement comes a day after a group representing some 20,000 new car dealers in the United States warned that dealers who accept additional sales under the program face a growing risk that they may not be paid back the rebates they have already given customers.

Dealers have complained of difficulty running businesses while awaiting government checks under the program.

As of Thursday, auto dealers had submitted claims to Washington for nearly 457,500 vouchers totaling $1.9 billion, of which just under 40 percent of the applications have been reviewed, according to the Department of Transportation.

The government has paid about $145 million to dealers.

PAPERWORK

The administration official said that a large number of applications had been returned to dealers, to be resubmitted, due to inaccurate or incomplete information.

The official advised dealers to get all of the necessary documentation and paperwork available before submission to ensure they have a valid deal.

The weeks-long delay in reimbursements has placed additional burden on dealers whose balance sheets have been hit hard by tight credit and the worst U.S. auto sales in nearly three decades.

To address dealers' concerns, General Motors said on Thursday it would provide cash advances to dealers to give them liquidity to run their businesses while they await government's checks.

GM said sales in the past two months had exceeded its internal forecast by more than 60,000 vehicles, largely driven by the clunkers program.

The automaker said it intended to provide advances for qualifying new vehicle sales already transacted under the rebate program and would provide advances as long as the program was in effect.

By late July, the clunkers program, inspired by similar programs in Europe, had been drained of its original $1 billion budget. Congress authorized another $2 billion to extend the program, which has been likened to a shot of Adrenalin for the U.S. auto market.

Given the popularity of the program and the rapid pace at which 'clunker' deals are being done, it is difficult, if not impossible, to accurately project the 'burn rate' of available funds, the National Automobile Dealers Association said in a statement.

U.S. retail vehicle sales in August are projected to exceed 1 million units for the first time in the past 12 months, boosted by the rebates, auto industry forecasting firm J.D. Power & Associates said on Thursday.

Combined with sales to fleet customers, such as rental companies and government agencies, total light vehicle sales are expected to come in at 1.1 million units in August, down 8 percent from a year earlier, J.D. Power said.

Improved consumer confidence and credit availability during the past six months have combined with the (rebates) program to lift industry sales out of their slumping year-to-date levels, which have been down approximately 35 percent year over year, said Gary Dilts, senior vice president at J.D. Power.

On a seasonally adjusted basis, widely tracked by analysts, U.S. August auto sales could be as high as 12.2 million units, up from 11 million units in July and the highest rate of 2009, the agency said.

(Reporting by Soyoung Kim in Detroit and Karey Wutkowski in Washington; Additional reporting by Andrew Quinn in Washington; Editing by Toni Reinhold and Tim Dobbyn)

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