Cash for clunkers.

‘Cash-For-Clunkers’ Vote May Open Path for $4,500 U.S. Vouchers

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By John Hughes

June 16 (Bloomberg) -- U.S. consumers may be able to collect as much as $4,500 by September on vehicle trade-ins under “cash-for-clunkers” legislation up for a vote in the House today.

The provision, scheduled to be taken up by the Senate after the House vote, gives vouchers to encourage Americans to swap older cars and light trucks for new, more fuel-efficient models. Automakers, whose U.S. sales fell 34 percent in May, support the plan as a way to get consumers into showrooms.

Approval of the $1 billion subsidy is likely because House and Senate negotiators agreed to incorporate the provision into a broader measure to fund the wars in Iraq and Afghanistan. Consumers could start getting rebates by Sept. 1, after the Obama administration sets rules for the process, said Charles Territo of the Alliance of Automobile Manufacturers.

“With auto sales hovering near record lows, it’s extremely important that Congress help,” said Territo, a spokesman for the Washington-based trade group, in an interview yesterday. “Many consumers have been waiting to purchase a new vehicle on the outcome of this legislation.”

Automakers have been pressing for the legislation all year to revive sales at their lowest since the early 1980s. “It is critically important,” said Ford spokeswoman Christin Baker, citing the “tough” economy and “weary” consumers.

Similar programs in countries such as Germany have boosted sales by as much as 40 percent, said Kerry Christopher, a GM spokesman. The U.S. program “will give customers a great encouragement to get back into the market,” he said in an e- mail.

New autos in the U.S. sold at an annual rate of 9.9 million units in May, the fifth straight month sales failed to cross 10 million, according to Autodata Corp., an industry research firm based in Woodcliff Lake, New Jersey. The rate was 14.2 million in May 2008 and averaged 16.8 million this decade through 2007.

Sales Forecast

The “clunkers” program may add to quarterly sales at an annualized rate of 1 million to 1.5 million vehicles, Brian Johnson, a Barclays Capital analyst, said in a June 12 report.

Consumers would get $4,500 vouchers 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 voucher, 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.

Added Funding

“The important thing is to get the program under way so we can start getting the benefits,” Representative Betty Sutton, an Ohio Democrat who crafted the plan, told reporters June 12.

An earlier version of the plan approved by the House on June 9 called for a $4 billion-a-year annual program to spur sales of 1 million vehicles. The $1 billion in the war bill will run out with the close of the fiscal year Sept. 30, meaning Congress will have to act again to fund the program in fiscal 2010.

Johnson said in his note he considers it likely the program will get the additional $3 billion in 2010, given President Barack Obama’s endorsement of the concept.

Senator Sam Brownback, a Kansas Republican and early backer of Senate approval of the plan, defected last week when he learned the plan would no longer be funded with part of the $787 billion stimulus legislation passed in February.

Deficit Spending

“The House has decided to fund the legislation through deficit spending,” Brownback said in a June 11 statement. “I will not support the plan.”

In the Senate, the cash-for-clunkers provision is sponsored by Debbie Stabenow, a Michigan Democrat, and has the backing of Richard Durbin of Illinois, the chamber’s No. 2 Democrat.

Senator Dianne Feinstein, a California Democrat who has backed the idea, has said the version of the proposal nearing passage “doesn’t make much sense” because only small improvements in fuel efficiency would be needed to qualify for a voucher.

The program would “allow a guzzler to be junked and a new guzzler purchased, essentially reimbursed by the taxpayers,” Feinstein said.

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

Last Updated: June 16, 2009 00:00 EDT