Cash-for-Clunkers Proposals Gain Popular Traction

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Visions of Success in Detroit

For the U.S. government, a trade-in program would be cheap—at least when compared with the $17.4 billion Washington has already spent to prop up GM and Chrysler, with billions more in aid teed up. There are 86 million vehicles in the U.S. that were built in 1997 or earlier, according to CSM Worldwide. Retiring just 5% of those cars and putting the owners in new models would cost the government about $13 billion, says CSM President and CEO Craig Cather. If 800,000 car buyers opt in, the cost would be about $3.2 billion.

What's more, the car companies say their prospects improve greatly—and their need for additional government loans goes down dramatically—if industry sales rise from their current annual level of 9 million units to 11 million units. GM's new CEO Fritz Henderson says the program would go a long way toward helping recovery. "Our industry is going along at a 9.5 million selling rate, and nobody is successful in this environment, nobody," he said.

Consumers would get a pretty sweet deal, too. Under the Sutton bill, a prospective buyer could trade in a 1993 Ford Explorer worth perhaps $1,000 on the used-car market and drive away a $25,500 Chevy Malibu for around $15,000, including incentives from GM and proposed breaks on sales tax.

"I've got to say, that much money would probably be enough to get me to trade in my 1998 Cadillac," says Joseph Dooley, a retired auto-parts executive from Ann Arbor, Mich. "At those kinds of discounts that wouldn't be there a year or two from now, I almost can't afford not to replace it now."

Opposition from Auto Importers

GM officials say getting the word out about the rebates would be a snap: E-mail and direct-mail campaigns would go out to owners of older cars that qualify. Dealers, meanwhile, are excited at the prospect of being able to move fuel-efficient models that have been clogging up their lots since gas prices tumbled, and would quickly advertise.

It looks as if the only losers in this game might be the owners of car repair shops and companies that import a lot of vehicles to the U.S. The Specialty Equipment Manufacturers Assn., which represents shops that modify and repair cars, has been one of the few voices lifted against a scrappage effort. And the American International Automobile Dealers Assn. has been one of the groups lobbying against any bill that would treat U.S.-built vehicles better than imports. "Interested in a fuel-efficient vehicle built outside North America, such as the 2010 Toyota Prius, which gets a whopping 50 mpg? Too bad, no voucher for you," complains AIADA Chairman Russ Darrow.

If such opposition delays the scrappage effort for long, though, foreign automakers could be compelled by public opinion to submit. In any case, such companies as Toyota (TM), Honda (HMC), Nissan (NSANY), and Hyundai (005380) will benefit by having vehicles they build in the U.S. covered by any of the bills being seriously considered.

Detroit, however, has much to lose if Congress dithers. Now that people know about the scrappage proposals and expect one to materialize, "more [buyers] will wait on the sidelines until it passes or fails," explains Ford's Pipas. And the last thing carmakers need now is an even worse month than March.

Kiley is a senior correspondent in BusinessWeek's Detroit bureau.