‘Cash for clunkers’ may Jumpstart US Auto Sales

By Rob Lever

WASHINGTON (AFP) — A so-called “cash for clunkers” measure approved by the US Congress could help reignite sluggish auto sales, although the overall impact may be modest, analysts and industry officials said.

The measure was included in a spending bill approved this week which provided one billion dollars to stimulate the struggling auto industry.

The plan, modeled on similar programs in France, Germany, Italy and Spain, which have had some success in sparking sales, would pay car buyers cash if they trade in their old gasoline-guzzling cars for fuel-efficient models..

The program “is an important step forward for America,” said Transportation Secretary Ray LaHood.

“It provides incentives for consumers to buy new, more fuel-efficient cars and trucks, providing a boost to the auto industry and protecting jobs, while limiting fuel use and greenhouse gas emissions.”

The Automotive Trade Policy Council — an association that includes Chrysler, Ford and General Motors — welcomed the measure, expected to be signed into law by President Barack Obama.

“We believe the ‘cash for clunkers’ legislation is a big win for consumers who will be offered a helping hand from the government to trade in older cars and trucks for newer, technologically advanced and more fuel efficient models,” said council president Stephen Collins.

“This action will also help to stabilize the auto industry here in the United States and give a healthy boost to the national economy during a very tough time. Similar programs around the world have been very successful and we expect the same results here.”

John McEleney, chairman of the National Automobile Dealers Association, hailed the measure, saying it “will boost consumer confidence, get the economy going again and reduce our dependence on foreign oil.”

The bill will provide up to 4,500 dollars in incentives to consumers who trade in certain fuel-hungry vehicles for autos which consume less fuel.

Edmunds.com, an automotive research firm, estimates that the measure will spark relatively modest sales — probably less than the 250,000 estimated — and would only provide an incentive for a small number of car owners whose vehicles are worth less than 4,500 dollars.

“Most qualifying ‘clunkers’ are at least 10 years old. Their owners are either not looking for an increased car payment or cannot afford to purchase a new vehicle, which averages nearly 30,000 dollars,” an Edmunds.com report said.

The requirement that consumers own the vehicle for at least one year will also limit the impact, according to the group, which argued that a looser allowance “would ignite a wave of economic activity” by stimulating purchases and resales of clunkers for the allowance.

“Similar legislation has seen success in Europe because European new vehicle buyers keep their vehicle considerably longer than those in the US,” said Jeremy Anwyl, chief executive of Edmunds.com.

“But in the end, this is a non-event. Even 250,000 new vehicles sales will not provide the impact needed for an industry looking for at least five million in additional sales.”

To qualify, the vehicle traded in must have a fuel economy rating of 18 miles (29 kilometers) per gallon (3.8 liters) and be in drivable condition. The new car must offer at least 22 miles (35 kilometers) per gallon.

The legislation comes with number-one US automaker General Motors in bankruptcy and Chrysler emerging from court protection under a government-backed alliance with Italy’s Fiat in the face of plunging auto sales.

The US market has steadied somewhat from lows earlier this year but the sales pace in May remained 33.7 percent below that of one year ago.

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