Senate votes to extend Cash-for-Clunkers
DETROIT -- The Senate extended a cash-for-clunkers program Thursday night that some in the auto industry say could drive a recovery in their business, while others already worry that demand will fizzle as the pool of eligible buyers shrinks.
The Senate voted 60-37 to put another $2 billion into the program, officially the Car Allowance Rebate System, or CARS. It will allow consumers to get rebates of up to $4,500 until Labor Day, under current estimates.
The House already had approved putting $2 billion more into the program, which gives consumers up to $4,500 in federal subsidies for trading in cars that get less than 18 mpg and buying new cars with better fuel economy. The measure now goes to President Obama to sign.
The Transportation Department said the program's initial $1 billion probably has been spent. But a paperwork backlog has prevented an accurate accounting. The auto industry has estimated an additional $2 billion is enough to help consumers purchase half a million more new cars.
Supporters of the program have hailed its effect on the auto industry, which had its best month in nearly a year in July, and on reducing carbon emissions.
"The reality is this is a program that has been working," Sen. Debbie Stabenow, D-Mich., said. "Consumers believe it's working. Small-business people believe it's working. People who make steel and aluminum, and advertisers … and everyone who's involved in the larger economic impact of the auto industry believe it is working."
The legislation had its share of Senate critics, most of them Republicans.
"What we're doing is creating debt," Sen. Judd Gregg, R-N.H., said. "The bill to pay for those cars is going to come due on our children and grandchildren."
About 5 million potential buyers are out there eligible to trade in their "clunkers" for more fuel-efficient cars, says Mark LaNeve, vice president of North American sales, service and marketing for General Motors. But not all of those people can afford to buy a new car. Demand will start to slow, he says, even if the additional money is approved.
"I think it will take two, three, maybe even four months to run through this money," he says.
And there's the problem of diminishing supply: Many dealers say they're out of the models that are eligible for the program. John Schenden, owner of Pro Chrysler-Jeep in Denver, says the initial rush has died down, and he doesn't expect to see the same level of showroom traffic even now that the program will be expanded.
"We sold what we could sell, and now inventories are so depleted, there's not much left," he says, noting his dealership has a few Chrysler PT Cruisers and some minivans left on the lot that qualify. "That's going to be a big issue for a lot of dealers."
The fact that only a small number of buyers qualify for the CARS program has prompted three big chains with dealerships in New York, California, Ohio, Georgia and Florida to offer their own incentives, open to buyers with 2006 model or older cars who trade up to any more-fuel-efficient vehicle. "We want to make it easy for people to qualify," says Brian Benstock, general manager of Paragon Honda and Acura in Queens, N.Y. Paragon will offer $500 to $4,500 in rebates.
Sales were likely to be stronger this summer anyway, says Jeremy Anwyl, CEO of Edmunds.com, as many bargain hunters start shopping now. Sales will be strong in August and September with the added money, but "it really won't matter," he says. "There's a real risk of sales declining after what should be a pretty strong summer."
Despite the sales jolt provided by the clunkers program, Standard & Poor's says it sees another two years of hard times for the nation's auto industry.
"For U.S. automakers and suppliers, a jump-start out of the global recession will require more than a quick power surge," Standard & Poor's said in a research note Thursday. It will take the rest of 2009 and all of 2010 to make it through the "the low-gear climb necessary to remedy the industry's structural problems."