WASHINGTON (Reuters) - The popular “cash-for-clunkers” program is boosting U.S. auto sales and manufacturing but is also slashing donations to charities that rely on gifts of cars to fund social programs, charity officials say.

Smokes comes from the engine of a "clunker" that is being permanently disabled as part of the U.S. government's "Cash for Clunkers" program at Clark Chrysler Jeep dealership in Methuen, Massachusetts August 7, 2009. REUTERS/Brian Snyder

Volunteers of America and other charities that receive tens of thousands of cars each year said such donations have quickly fallen up to 12 percent -- and fear a 25 percent drop eventually, or over $100 million -- as owners rush to trade gas guzzlers for new fuel-efficient models while federal rebates last.

“We started seeing it right away in July” when the program began, said Jim Hartman, vice president of vehicle donations at Volunteers of America, a nationwide charity. “It varies by market, but there’s been an 11 to 12 percent drop compared with last year.”

“The cars I’m seeing cashed in as clunkers, like older SUVs, are absolutely the typical donation to us,” he said.

The clunkers program gives consumers a U.S. government rebate of up to $4,500 for trading in older, inefficient vehicles for new, fuel-sipping ones. Washington scrambled early this month to add $2 billion when the popular program’s initial $1 billion funding was quickly spent.

Rick Frazier, director of the car donation program at The Military Order of the Purple Heart, which assists U.S. veterans, estimates the $3 billion will result in 700,000 clunker trades.

Frazier said charities would normally receive 25 percent of those 700,000 cars and, at an average value of $600 each, they could be out $105 million over 24 months.

“That will be devastating,” he said. “A lot of services will have to be cut.”

HELPS VARIETY OF THE NEEDY

Over the last 20 years U.S. charities have started up car, airplane and boat donation programs they convert to cash that helps fund social services for the needy, including the elderly, the homeless, disabled vets and at-risk youths.

Volunteers of America and Purple Heart each get about 40,000 to 50,000 car donations a year. Many go to auction while others are sold at a discount to low-income Americans.

But the clunkers program is also having social benefits by jolting the U.S. economy and putting people back to work.

Ford Motor said last week the program has ignited sales, prompting it to reopen plants and increase third-quarter production by 18 percent to 495,000 vehicles, especially its fuel-efficient Focus and Escape models.

Officials fear the clunkers’ impact will linger for six to 12 months as hundreds of thousands of trade-ins are squeezed into the summer months. Over the next year, Volunteers of America’s car donation revenues could be cut 25 percent, Frazier said.

“People usually take their time shopping for a new car, inquiring how much their old vehicle might fetch as a trade in,” Hartman said. “We wouldn’t get them this week or next week but spread out over a year they’d come in.”

Only clunkers still running are eligible for rebates. But charities are still getting “non-runners,” or junk cars, that aren’t eligible for the federal program.

Volunteers of America and Purple Heart have yet to alter their programs to inspire donations, officials said.

But Melwood, a Washington-area charity that helps people with disabilities, partnered with a popular restaurant chain to offer a $100 gift certificate to people who donate cars.

Under current law, donors get a tax deduction of up to $500 or the car’s selling price if a charity sells the car.

But Hartman said he hopes Congress will approve a bill pending in the House of Representatives that promotes charitable donations of cars, boats or airplanes by allowing tax deductions of up to $2,500 or the item’s appraised value.