Cash For Clunkers Deal Drawing Nearer in DC.

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.

Reader Comments

Rosemary Shahan

April 24, 2009 3:20 PM

Spurring sales of newer, cleaner, safer vehicles is great, but -- there need to be safeguards for consumers and taxpayers, so the government doesn't end up subsidizing massive fraud in the form of excessive price gouging for more fuel-efficient autos, "loan packing" of overpriced, unwanted items, and other common auto dealer scams.

There also need to be protections against dealers taking the vouchers, cheating customers by failing to pay off outstanding liens on the trade-ins, then going belly up. This is already a huge problem that the Auto Task Force has been ignoring. Deadbeat dealers are ruining consumers'credit, sometimes costing them their jobs and forcing them into bankruptcy. This is dampening auto sales, and urgently needs to be addressed.

HR 1550, Sutton's bill, should ensure taxpayers are not footing the bill for fraud or luring consumers into showrooms that are about to be shuttered.

Jeff B

April 24, 2009 3:28 PM

If the goal is to stimulate auto sales and get gas-guzzling, polluting cars off the road, the bill will have far more impact if the Govt does not try to restrict what types of vehicles we buy. John Dingell is only upset about this because his campaign coffers are filled with bribe money from the domestic automakers who are always looking for some special treatment, because they can't compete. Only in the US do we argue over legislation which could clearly benefit the public, and turn it into legislation which only benefits those who contribute to our elected officials campaigns. Does anyone actually think that giving people a cash incentive to buy a Chrysler instead of a Nissan is going to save that company from ruin?

david wayne osedach

April 24, 2009 3:44 PM

Cash for clunkers? They're doing it in Europe and it seems to be working. Why not here?

Lyman Riley

April 24, 2009 4:30 PM

How would this bill effect someone who just traded in a clunker and bought a new 2009 fuel efficient car?

From Kiley: Wait for final passage of the bill and see how the language impacts vehicles bought starting March 31. President Obama said there would be some retroactive feature of the bill the day he made his speech on March 31.

Fraser Young

April 25, 2009 11:07 AM

Greetings from the Green Vehicle Exchange Program..

We have solutions concieved for eliminating all of the problems related to vehicle
scrappage.

They will be implemented soon in the US and our advice has been offered to the UK govt
and industry associations.

We will prevent the increase in prices for the older cars from these plans, helping the
lesser fortunate as opposed to hindering them with limited supply.

We will avoid the decline in newer used car values that has resulted in Germany(30pc> in
value)from demand decline.

We will make wider eligibility that will offer incentives to those with 5-10 year old
cars that will be far more likely to participate financially in the first place.

We have also devised a system wherby millions of $2-300 tune up repairs and parts additions will occur through a self funding portion of our plan.

We will remove many more of the real oldest higher polluters and not cause"negligible
carbon reduction" beneits as a result of our better systems.

Should the News desire to investigate further I await the contact.

Environmentally, Economically, Opportunely and Stimulatingly Yours..

Fraser J.M. Young
Creator - Executive Director

ps

April 26, 2009 2:29 PM

Is a Chevy Equinox with an engine made in China eligible? Or a Honda Accord with 70+% US manufactured content?

maxie

April 27, 2009 9:06 PM

I would like to see the govt come up with a plan on how to scrap itself and all this social and economic engineering nonsense.

Phil

May 1, 2009 9:39 PM

Personally, I would like to see a Time Machine invented. That way, we could send Maxie back in time to abort herself and thereby prevent her from posting inane comments that serve no purpose other than to continually bash the government. If I'd wanted to hear the opinions of a "ditto-head", I'd have visited Rush Limbaugh's site instead of BusinessWeek's.

JAMG

May 3, 2009 12:22 PM

Extremely important question: under the compromise bill, what will be the criterion for getting a voucher? The age of the vehicle (the house bill gives vouchers for vehicles older than 8 years)? Or the "original" MPG of the vehicle when produced (as in the senate bill)? If MPG is used, will we use the "original" figures or the “recalculated” (post-2008) figures (which are closer to reality)? My 17 year old Geo Prizm, which got a decent MPG when manufactured (but not so much now), may or may not qualify--but I'll certainly continue to put off the purchase of a much needed car until I know for sure. In the meantime, I'll just pay to weld the muffler back on (again).

Bernie

May 5, 2009 6:55 PM

This is a ridiculous bill to help the auto industry. But how about the american public who can't afford a new car? Will the government put up the bill to provide them with money to buy a new car? Remember also there are older cars that are well maintained and are not a candidate for the junkyard.

Bernie

May 5, 2009 7:10 PM

This is a one-side bill. Did they ever think of the poor American public who can't even buy an old car??? To help auto industry to survive you have to pressure the poor American people to shell out their hard earned savings to buy a new car??? The poor American people are the ones who need financial assistance not the big corporations whose only aim is to make money out of the American public.

Leota

May 7, 2009 9:37 AM

My questions are if you have several cars that are Older than 2000
1 Non-running needing engine or transmission repair
Will these qualify for vouchers?
2. How many vouchers can you get? Such as you have multiple older cars
3. How much over scrap yard price will you get?
4. Can you combine vouchers and get enough to buy a newer car outright without having car payments?

Hey Phil?

May 11, 2009 1:47 PM

Personally, I would like to see a time machine invented. That way, we could send Phil back in time to douche himself and thereby prevent him from posting insane comments that serve no purpose other than to continually prop up the socialist government machine. If I wanted to hear the opinions of a "liberal puke", I'd have visited Business Week's site, instead of Rush Limbaugh's. It's imbeciles, like you Phil, that moronically think that the U.S. government is looking out for your good. Wake up! Oh, and try using some sort of spell-correction method.

JUAN R R RODRIGUEZ

May 13, 2009 12:49 PM

THIS BILL JUST SHOWS HOW BAD THIS ADMINISTRATIONS THINKING IS THEY HAVE NOT A CLUE AS TO WHAT TO DO THEY JUST FOLLOW WHAT OTHER COUNTRIES ARE DOING IT WILL NOT WORK HERE

Momo

June 13, 2009 11:42 AM

The government would have to make the trade in well worth it, because trading in an older car for newer, nicer car for a discounted price sounds good, but what about taxes and insurance rates? Newer cars have higher taxes and insurance premiums are much more expensive than cars that are 10+ years old. In the long run, it might not be worth saving the initial couple-of-thousands of dollars. Plus, newer cars have a faster depreciation rate than older cars. There are a lot of small details like that which should be considered.

mogo

June 19, 2009 4:29 PM

Why did they stipulate the vehicle being traded has to be 1984 or newer? I have an 83 F150 that I would definitely trade for a fuel efficient vehicle if it would qualify.

chad

June 20, 2009 6:38 PM

Liberal puke? Ridiculous comments. All "liberal" ideas or thoughts are not bad. Compared to most conservative ideas, which usually just benefit the rich and screw the rest of us.
Many Americans can't afford a new car, even with a 4500 discount, crap many Americans would love to have the older cars they want to scrap!
There should be an income limit to this program,the rich shouldn't be allowed to use it,they can afford their cars already. Also, you should be able to purchase a used, newer vehicle, not just a new vehicle.
This almost just sounds like a program to move money from Americans to banks and the car companies, leaving us with payments and interest we can't afford.

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