July 2 (Bloomberg) -- Hyundai Motor Co., South Korea’s largest carmaker, is advancing money to U.S. dealers so they can immediately take advantage of a “cash for clunkers” program.

The payments cover new-vehicle credits for consumers until the federal government completes rules for the program later this month and begins paying dealers, Hyundai spokesman Chris Hosford said in an interview today. Hyundai is the first manufacturer to extend such advances, he said.

Consumers can get credits of as much as $4,500 under the program to purchase a new vehicle in return for handing in a lower-mileage, older model to be scrapped. The government faces a July 24 deadline for completing rules describing how it will reimburse dealers for the credits.

The Hyundai action reflects efforts by manufacturers to stoke car sales battered by a recession. U.S. vehicle sales in June fell 28 percent to 859,847, the 20th straight monthly decline, Woodcliff Lake, New Jersey-based Autodata Corp. said.

The manufacturer’s advances are “for the consumers’ benefit,” said Kevin Reilly, owner of a Hyundai dealership in Alexandria, Virginia. “There are lots of other things they want to do with their lives rather than wait to buy.”

Reilly’s dealership sold the first vehicle under Hyundai’s offer. Katherine Michon of Arlington, Virginia, replaced a 1995 Ford Explorer with an Elantra Touring, the automaker said in a statement.

Sales as of July 1 may be eligible for clunkers credits, the National Highway Traffic Safety Administration said last week. Still, dealers that make sales before the rules are complete “bear the risks” of later showing that the sales qualify, the NHTSA said on Web site for the program.

Waiting for Rules

The National Automobile Dealers Association recommends dealers wait for the rules to come out before acting, said John McEleney, chairman of the McLean, Virginia-based group.

“I just hate to see someone get burned,” he said. Dealers could be fined $15,000 for each sale for violating the rules, NHTSA has said.

Hosford and Reilly said they are confident retailers won’t end up paying a price for the early sales because the criteria for qualifying vehicles are spelled out in the law Congress and President Barack Obama enacted on June 24.

The “vast majority” of Hyundai’s almost 800 U.S. dealers will likely participate in the company’s advance-payment program, Hosford said.

Trade-In Terms

Under the clunkers program, consumers will get a credit of $4,500 if the new car they are buying gets 10 miles-a-gallon better gas mileage than the model they are trading in. For light trucks, the improvement must be 5 mpg better than the older model.

For a $3,500 credit, the improvement for cars must be 4 mpg or better, and for light trucks, 2 mpg. The trade-in vehicle must be no older than a 1984 model and get 18 mpg or less in combined city/highway fuel economy.

New passenger cars purchased with the vouchers must get at least 22 mpg in city/highway fuel economy, and light trucks must get at least 18 mpg. Domestic as well as foreign models sold in the U.S. qualify.

The $1 billion in federal subsidies may spark 250,000 new car sales, U.S. lawmakers have said. The program will end Nov. 1 or when the $1 billion in subsidies expire.

To contact the reporter on this story: John Hughes in Washington at jhughes5@bloomberg.net

Last Updated: July 2, 2009 17:08 EDT