* Cash for clunkers $1 billion in funding exhausted

* House passes additional funding but Senate yet to act

* Some potential buyers left in limbo

* Estimates show 250,000 cars sold under popular program

Americans flocked to auto dealerships this month to take advantage of government rebates for gas-guzzling clunkers and promptly drained the program's $1 billion in funding, leaving some prospective buyers in limbo.

It was going to be the first new car I ever owned, said a glum Dan Pasick, who works for an Ann Arbor, Michigan, commercial real estate firm.

A few minutes before Pasick left home on Friday to pick up the black Mazda he had arranged to buy the night before, and hand over his aged Lexus to be disposed of under the cash for clunkers program, the salesman called to cancel the unconsummated deal out of fear the rebates were suspended.

The White House scrambled to explain that the popular program was still alive and the U.S. House of Representatives quickly approved new funding, transferring $2 billion from an Energy Department program. The Senate is expected to consider the bill next week but prospects for passage are unclear.

The program to spur sales in the struggling auto industry offered $3,500 to $4,500 to people who trade in an old car with lower fuel mileage for a new, more fuel-efficient one.

Doubts about the program's status confounded car dealers, who were otherwise pleased by the overwhelming response.

It's definitely worked in terms of bringing folks into the dealership, and really generating some traffic and we have definitely sold more cars, but the paperwork is horrendous, said April Ancira of Ancira Motors in San Antonio, Texas.

Unofficial government and industry estimates show that close to 250,000 vehicles were sold under the program, which officially began last week although dealers have been allowed to take clunker trade-ins for a month.

Auto dealers were becoming concerned about getting government reimbursement for the clunkers, which were the dealers' responsibility to crush and scrap, because the computer system set up to register sales was clogged.

It is a bureaucratic nightmare, said Cliff Johnson, president of Texas Motors Ford in Fort Worth. We have sold 20 cars so far and have not been able to record them yet.

'FREE MONEY' When word trickled out that the overwhelming buyer response had exhausted the program's $1 billion funding in just a week -- policymakers had expected the money to last a few months -- critics drew their knives.

The way this is being handled, if this had anything to do with (government-run) healthcare, thousands and thousands of Americans would be DEAD, said a typical comment published on the Minneapolis Star-Tribune's website.

The Mazda dealer who telephoned Pasick with the bad news said he had to notify eight other prospective buyers their deals were off. Pasick canceled a weekend car trip and waited by the telephone in case he could still claim his new car.

Anticipating the crush and acting fast paid off for Chicago attorney Mark Wilcox, who surrendered an aging Mercury sedan -- he called it a Lazy-Boy-on-wheels -- and obtained a $3,500 rebate, a $150 metal salvage payment, a no-interest loan, and free oil changes in buying a gas-sipping 2009 Volkswagen GTI.

The other nice thing is I don't have to pay taxes on that $3,500. It's free money. I'm not surprised (the government program) ran out of money so quickly. People like to buy cars, he said, citing pent-up demand in a moribund car market.

Mike and Alexandra DeMillo of Atlanta also took advantage, trading in a 1997 Ford Thunderbird for a new Honda Accord in part because of the better mileage but also because they are expecting a child.

(The program) is tangible. It's something that has a direct impact. The buyers benefit. The whole chain benefits, Mike DeMillo said.

At Courtesy Chevrolet in Phoenix, sales director Scott Gruwell said the program generated a jump in business.

The government has pumped out billions of dollars to try to stimulate the economy and get the ball rolling, he said. They threw $1 billion at this program and they zipped through it in seven days.

I think this is the best thing the administration has done, said Pete Smith at Bob Smith Toyota in Los Angeles. I've sold 75 cars in five days, and 45 were for actual clunkers. Those were 45 deals I wouldn't have seen otherwise.

(Additional reporting by Ed Stoddard in Fort Worth, Jim Forsyth in San Antonio, Tim Gaynor in Phoenix, Soyoung Kim in Detroit, Steve Gorman in Los Angeles, Matt Bigg in Atlanta; Editing by Eric Beech)