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What started with a bang could end with a whimper. The government's cash-for-clunkers program was a smash out of the gate. People stampeded showrooms after its late-July launch to trade in an old car or truck for a check of $3,500 or $4,500 to put toward buying a new, more fuel-efficient vehicle. But since the early days of the program, interest is fading.

The government said on Aug. 7 that dealers sent in applications for 245,000 clunker checks, totaling $1 billion. That tapped out the first round of funding and Congress pushed through another $2 billion, which President Barack Obama signed into law. But just as that new money got the green light, showroom traffic and inquiries about the clunker program was fading. There are fewer eligible clunkers on the market and a lot of the eligible new-car inventory has been sold. The Transportation Department announced a remedy today, saying that car buyers can apply for clunker cash if a sale agreement has been reached for cars that are ordered for production but not yet on dealer lots.

Why Trade-ins are slowing

Carmakers would be happy to build more compact cars and family sedans, if that's the only thing slowing the success of the program. Indeed, Ford Motor (F) said on Thursday it was boosting production of Focus subcompacts and Escape crossover SUVs to meet surging demand. The Focus was the top model purchased through the clunker program in July.

But Edmunds.com, which tracks vehicle pricing and buying data, says there's something else at play. When the public thought the program would cease after the first $1 billion was spent, it rushed to dealerships. Now that there is more money, there's no urgency to get there. In fact, car shopping on the Web that is tied to the clunker program is down 15% from its peak. By Aug. 20, we could be back to pre-clunker sales levels, Edmunds.com says.

Ford says its dealers are still seeing robust activity. Ford sales analyst George Pipas says his dealers are seeing "eye-popping" retail sales in the first week for August. In fact, the seasonally-adjusted annual selling rate for the week was 16 million vehicles, which is a breath of fresh air for an industry that has been on pace to sell 10 million cars for most of the year. But that same rate is down from the blockbuster 19.8 million vehicle selling rate for the last week of July, when the clunker program had just started and the hype and excitement were in full bloom.

The drop in activity has some analysts wondering how long it will take to spend the $2 billion allocated for the second wave of the program. Pipas says the $2 billion, which would help sell 500,000 cars, will be used up by the first week of September. John Wolkonowicz, an analyst at IHS Global Insight, says there could be cash unspent into October or November. Executives at Ford, whose Washington lobbyists led the push for the program, think it will continue to be a success. But Pipas did say that the early sales success in August could be attributed to dealers who are getting shoppers to buy even if they don't qualify for clunker cash.

Some dealers say that the falloff in traffic has only hit some brands. Fort Worth [Tex.] dealer James Hardick says he has seen traffic die down for deals involving clunkers at his Mortiz Chrysler/Jeep and Moritz Chevrolet dealerships. "It's just not the bull rush we had the first week," he says. But at his Moritz Kia store, the clunkers just keep coming in, Hardick says.

J.D. Power & Associates [which, like BusinessWeek, is owned by The McGraw-Hill Companies (MHP)] thinks that most of the cars purchased through the program were simply sales that would have happened this year but were pulled ahead a few months. The company believes as few as 20% of the cars bought in the program are really new sales to the market. That means as many as 80% of the cars would have been sold this year anyway, says Gary Dilts, president of J.D. Power's auto industry group. That means that there will likely be payback with some slower sales months after the program expires.

The clunker program was clearly a nice boost for a struggling economy. But after that cool breeze, carmakers could be headed back into the doldrums.