Posted by: David Kiley on April 24, 2009
Legislation that would give consumers incentives to trade in vehicles that are at least nine years old and buy a new more fuel efficient vehicle is nearing political compromise that could make the program a reality in the next few weeks, say sources on Capitol Hill.
Those sources and lobbyists involved in the negotiation say that differences between industry and environmentalists, and between Democrats and Republicans are mostly ironed out.
One bill, sponsored by Rep. Betty Sutton, D-Ohio, would give larger amounts to American-made vehicles, smaller amounts to North American vehicles, and nothing to other foreign-made vehicles. Another bill, sponsored by Rep. Steve Israel (D-NY) would focus on giving vouchers to owners of the biggest gas guzzlers to be used for the purchase of more fuel efficient vehicles.
According to those involved in finding compromise legislation, the likely outcome in a final bill would open up the program to all auto companies—U.S. as well as foreign—and allow consumers to trade their old cars in for more fuel efficient vehicles no matter where they are built. To spread the program evenly, companies helped by the tax-payer-funded program would have their benefit capped according to their market share.
That might mean, for example, that Ford would see the benefit to its sales capped at around 14.7% of the program’s cost, projected to be about $4 billion. Once the benefit to Ford buyers reached about $748 million, or about 14.7% of $4 billion, no more Fords would qualify for the incentive. GM’s benefit would be capped at about 18.5% of the program. And so on.
Rep. John Dingell (D-MI) told BusinessWeek two weeks ago that his constituents “have a big problem using their tax dollars to support foreign automakers.” Said Dingell: “It’s going to take a very careful legislative process to get a bill through. But that’s okay, good legislation always takes a lot of careful work.”
The formula for what vehicles would qualify is still being hashed out. But trades, such as a nine year old or older Ford Explorer traded for a 2010 Ford Fusion Hybrid, for example, would probably be the kind of swap that would get the maximum benefit.
Legislators have been leaning toward exempting businesses from a stiff fuel economy requirement so that a building contractor, for example, would be able to simply trade in an old pickup truck for a new one to get a big rebate.
“We are working closely with Members of Congress, the Administration and other stakeholders," says Charles Territo, spokesman for the Alliance of Automobile Manufacturers. "We are hopeful that we are closing in on a program that will provide significant incentives to get a wide range of consumers back into auto showrooms...It’s critical to get something in place as soon as possible to turn around the historic crisis we are in," says Territo.
Favoring U.S. built vehicles or shutting out those that are foreign-built would also put the U.S. in violation of World Trade Organization covenants, so the likelihood of such measures ever passing are almost nil. Republicans in particular have opposed those protectionist measures.
Estimates are that a “cash for clunkers” bill could add one million new vehicle sales in the U.S. over the next 12 months over and above what the market would be on its own without the program. That would not only help automakers, but suppliers and dealers. Not to mention consumers.
Such programs have been successful in Europe, which have not dialed any protectionist measures into their programs. Indeed, Ford and GM have greatly benefited from the programs in Germany, and Ford, the biggest manufacturer in the U.K., expects to reap big benefits as that country’s program gets underway.
Some voices oppose the clunkers part of the idea. The Specialty Equipment Manufacturers Association, for one, has opposed the need to scrap older cars in order for the program to work. One of the complaints is that people will roll derelict and non-running vehicles into dealerships rather than trading in older running vehicles.
But key politicians, like Speaker of the House Nancy Pelosi, have insisted that part of the program involve getting older, less fuel efficient vehicles off the road.