Why is Cash for Clunkers Working?

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After allocating hundreds of billions of dollars in an attempt to stimulate consumer demand, it seems like we've found something that actually works: the $1 billion "cash for clunkers" program.
 
The program, which pays car owners $3,500 or $4,500 to exchange their old cars for new, fuel efficient ones, has been so succesful that it ran out of money in a few days. As a result of the program, Ford posted its first monthly sales increase for U.S. sales in more than a year and a half last month; other car companies and dealerships saw marked improvements in their sales, too.
 
But why is the Cash for Clunkers program working? After all, car companies already dropped their prices considerably and were offering a number of deals such as "employee pricing." Combined with the real trade-in value of old cars, these discounts and price drops were often as generous as the Cash for Clunkers program. Yet, these incentives could not sufficiently spur demand.
 
So why is Cash for Clunkers succeeding where price decreases failed?
 
 
Traditional economic theory might offer a few explanations:
 
1) Size. The car companies couldn't bring prices low enough without losing too much money, but the combination of their discounts and the clunker program has made cars cheap enough.
 

2) Timing. Consumers view the clunker program as temporary, but the discounts as fairly long term -- so they are buying now before they can no longer take advantage of the clunker program.
 
 
There are also a number of possible explanations from the field of behavioral economics:
 
1) Trust in Price. People don't trust that car company discounts are actually discounts -- because they don't know the "true price". But when the discount is provided by a third disinterested party, they trust it.

2) Pricing as a Signal. People see car prices as a signal of quality, so that price reductions result in perceived quality reduction. Again, the same isn't true when a disinterested third party is giving you a discount (in the form of a rebate).
3) Cash-flow Perception. People perceive more value from being handed cash than from observing lower prices.
 
4) Clarity of Magnitude. Car company discounts are not quantified well when advertised. Companies tended to claim "employee discounts for everyone" or sometimes "up to x% off". The clunker program has a clear and easily understandable cash value.
 
It's important to identify which (if any) of these explanations is responsible for the program's success. If we understand how people respond to certain policies and incentives, we can conduct more efficient and effective government policies.