Posted by: David Kiley on March 17, 2009
A bill introduced in the House today would provide consumers with between $3,000 and $5,000 in incentives to scrap vehicles at least eight years old and buy fuel efficient cars and trucks.
The bill, introduced by Rep. Betty Sutton (D-Ohio), would assist consumers in buying cars that get at least 27 mpg on highway, and trucks/SUVs that get at least 24 mpg on highway. The higher the fuel economy, the bigger the voucher. The bill also provides travel vouchers for people who choose mass transit. Trade in a vehicle more than eight years old and you could get $3,000 in mass transit travel vouchers.
“This legislation will help consumers, stimulate our economy, improve our environment, reduce our dependence on foreign oil, and help our domestic auto and related industries, upon which millions of American families depend upon for employment,” said Sutton.
The bill’s introduction comes on the heels of a similar measure that worked in Germany. After implementation of its consumer incentive program, sales of new vehicles in Germany increased 21 percent in February 2009, versus the same month a year ago, while other European countries showed declines.
Assessing the cost of the bill at a time when deficits and the costs of bailouts are running high could be a problem. But, according to auto industry lobbyists and Hill staffers, the idea of stimulating sales through incentives for greener vehicles should have support on both sides of the aisle. “This has legs,” says one Republican Senate staffer. “It will be popular with voters and a lot of people on both sides.”
All automakers would benefit, but Asian-owned companies would actually benefit disproportionately to those in Detroit. Based on 2008 fuel economy figures analyzed by Automotive News, 48% of Chrysler’s passenger cars would qualify for incentives, while 63% of Ford’s would qualify and 49% of GM’s. One-hundred-percent of Hyundai’s and Toyota’s U.S. built passenger cars would qualify, while 90% of Nissan’s and 93% of Honda’s would qualify.
The flipside is that none of the Asian companies’ vehicles built outside North America would qualify for the vouchers.
Ford issued a statement of support. “By providing incentives to purchase a new vehicle, the legislation would help reduce consumer costs, jumpstart the economy and help support millions of good jobs in every state across the nation,” the automaker said.
Many automakers jacked up sales incentives in January and February, but to not much advantage. “There comes a time when piling on more dollars doesn’t work to your advantage, and a lot of people are just staying out of the market until they see some better economic news,” said Ford chief sales analyst George Pipas. February sales were running at an annualized rate of 9.12 million, the lowest level since 1981.
As consumers hold on to their cars longer, the media age of cars on the road climbed to 9.4 years in 2008, and the media age of trucks rose to 7.4 years, both records. There are roughly 249 million vehicles on the road today, according to R.L. Polk.
The vouchers cover vehicles made in Mexico and Canada, but favor those made in the U.S. A $4,000 voucher is available for a car made in the U.S. meeting the fuel economy standard. A $5,000 voucher goes for a car that gets 30 mpg. A car built in Mexico and Canada getting 27 mpg gets no voucher. But one reaching 30 mpg gets a voucher of $4,000.
Trucks and SUVs meeting the fuel economy standard built in the U.S. get a $4,000 voucher, while those made in Canada and Mexico get $3,000. A business replacing a work truck with one that gets greater fuel economy of any kind gets a $5,000 voucher.
If the bill gains traction, it will likely have a cap on the total cost and layout by the taxpayer, favoring consumers who act fast. The savings could be big for those buyers who take advantage of the program as it is written. Incentives for some of the vehicles that qualify can be as high as $3,500 just from the automakers.
Non business buyers of full-sized pickups and sport utility vehicles wouldn’t see much benefit beyond current incentives because those vehicles don’t meet the fuel economy aspect of the deal.
The bill comes out at a time when GM and Chrysler are trying to justify billions more in taxpayer loans to avoid bankruptcy. The deadline for proving their case is March 31.