Senate Passes Cash-For-Clunkers Bill, President Likely to Sign

By Brendan Moore

O6.19.2009

united_states-one-dollar-bill-obverseThe United States Senate passed the long-awaited Cash-For-Clunkers bill yesterday, sending it to President Barack Obama, who will probably sign it immediately. President Obama has fought hard to get the bill passed in Congress.

Champions of the bill are hoping it will spur auto sales, with the side benefit of reducing vehicle emissions. The auto industry is focusing on the stimulus to sales, and environmental groups are interested in the reduction of vehicle emissions.

Carl Levin, the Deomocratic senator from Michigan, and a staunch supporter of the domestic auto industry, stated, “This program will provide a much-needed boost to the struggling auto industry, including manufacturers, dealers, suppliers and other related industries.”

It also will “encourage consumers to purchase more fuel-efficient vehicles,” he said.

The program would kick off 30 days after the president signs it, and is limited to a total expenditure of $1 billion USD and expires October 1, no matter what else happens.

The bill that passed the Senate has stricter terms and less money allocated to the program than the original bill put forth two months ago. It was attached to a war spending bill for strategic reasons by the bill’s supporters.

The bill provides cash vouchers of up to $4500 USD for car buyers that trade in vehicles defined as gas-guzzlers. The eligible trade-in vehicles are:

Passenger cars as old as 1984 model year with combined mpg ratings of 18 or less are eligible. Owners get a $3,500 voucher if they buy for a new car that is rated by the federal government at least 4 mpg higher, or, $4,500 if they buy a car that achieves at least 10 mpg more.

SUVs, pickups or minivans as old as 1984 model year that get 18 mpg or less could redeem a voucher for $3,500 if their new SUV, truck or minivan gets at least 2 mpg more than their old vehicle or $4,500 if the new truck or SUV gets at least 5 mpg more. No word yet on what happens when someone trades an old pickup truck for a new car, but since the light truck is a passenger vehicle, it is assumed the passenger car terms of the program kick in.

Owners who wish to trade in such a vehicle must have owned it for at least a year, and it has to be road-worthy. Dealers are then accountable for making sure the trade-in gets taken off the road and junked.

Estimates of additional sales resulting from the program vary. Congressional Budget Office data suggest the bill would result in the sale of 150,000 new cars, according to Nichole Francis Reynolds, chief of staff to Rep. Betty Sutton, D-Ohio. In the interests of disclosure, it should be noted that Sutton sponsored the original bill. Edmunds.com, however, believes the bill will result in around 250,000 new vehicles sold that wouldn’t have been sold otherwise.

Critics say that even the higher number of 250,000 sales (and, at government expense) will make no difference in an industry that needs around five million more sales annually than it currently has in order to be healthy.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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6 Comments

  1. I think I agree with the skeptics. This is a nice treat for a small number of people.

    But it’s not going to do much for the auto industry. It’s just not big enough.

  2. Every little bit helps, especially if you’re in the auto industry like I am. It’s easy to find fault with anything if you try hard enough.

  3. Question: If ‘collector cars’ (let’s say for example a borderline collectable car like a ’67 AMC Ambassador, or maybe one of the last Chrysler Imperials from the early ’80s) get traded in, do they get junked in spite of any historical value? If so, I oppose this new law. I realize this wouldn’t affect a recognized collectable like a ’57 Chevy. No one would be stupid enough to trade one for a new Kia. But what about those borderline cars that may be worth less than $3,500-4,500 right now but will appreciate in value in the future–and are a part of our automotive heritage.

  4. I fail to see how US automakers are going to become more competitive in producing greener products and the CAFE objectives for 2016 will be met by luring consumers in

  5. If 18 mpg fuel efficiency was about average in 1984 and 20-22 mpg is par in 2009 this shows how small the advances in fuel efficiency have been since the 1984.

    This plan should be called “Clunkers” for “New Gas Guzzlers that Will Not Sell.” with gasoline creeping back towards $4/ gallon.

    It’s just that so few Domestic made cars currently meet the 10 mpg improvement threshold of 28 mpg combined cycle that most will settle for the $3500 vouchers on the 22 mpg models.

  6. It won’t do anything for sales.

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