Supporting the U.S. Auto Portfolio: Cash for Clunkers

Well, we all knew this was coming:

The U.S. House approved legislation that would give consumers as much as $4,500 to buy new, fuel-efficient vehicles under a “cash-for-clunkers" proposal aimed at boosting auto sales.

The program, passed 298-119, would replace 1 million older vehicles with newer cars and trucks to reduce gasoline use and air pollution, according to the measure’s sponsors. Car owners would get a $3,500 government voucher for the purchase of a new vehicle getting 4 more miles per gallon than their old car. They would get $4,500 if the new vehicle improved mileage by 10 miles per gallon.

The program would provide funds for car owners whose vehicles get 18 or fewer miles per gallon. The new car would have to get at least 22 miles per gallon. Similar benefits would be available for truck owners who trade in their vehicles for ones getting at least 1 mile per gallon more. The money could be used to buy U.S. or foreign vehicles.

Okay, does this have anything to do with the government owning stakes in two of the D3 failures? It seems, on the surface, to be another way for the government to further support and subsidize their auto portfolio. Wonder if the inclusion of foreign vehicles has anything to do with Fiat (FIATY.PK) managing/controlling one of their portfolio companies? Note the high hurdle rate in the most profitable segment of the US auto industry - 1 mpg improvement in trucks. "Green" shoots.

Disclosure: long "old GM" bonds, Ford bonds and preferred

Comments

[berated:]

How will they calculate the mpg of the trade-in vehicle?

Jun 10 12:44 PM

[Buckoux:]

"From my cold dead hands", they'll have to pry my 1985 Chevy El Camino that I purchased new. It's all the car I want and all the truck I need.

Jun 10 12:46 PM

[James Quinn:]

Cows for Cash is next.

theburningplatform.com...

Jun 10 01:03 PM

[TinyTim:]

berated-
MPG info is available from the Fed online for models going back at least as far as my 88 Civic. Like all govt stats they have to compensate for when they "adjusted" the MPG procedure.



"Sen. Debbie Stabenow (D-Mich.) has introduced a similar version of the legislation in the Senate. The voucher would be redeemable for a year, and traded-in vehicles would be recycled, giving an additional economic boost to auto parts resellers and recyclers."
www.politico.com/news/...

Does not compute- "additional economic boost to auto parts resellers" These parts will give new life to the guzzlers they want to get off the road!?! Debbie is a few sockets short of a set.

Of course, this law will only apply to purchase of brand new cars. If I trade in my clunker for a newer clunker with much better MPG, fuggetaboutit. Even though it still reduces oil dependency. That's right, Debbie is from Detroit.


Tangled mass of twisted wreckage dept: Many states have lieu taxes on vehicle registrations where newer vehicles pay higher taxes for 5-10 years. A disincentive to buy new cars, check.

In Japan, where they have always cared about car companies and the environment and fuel economy, the older the car gets, the more it costs to reregister. An incentive to buy new cars.

This has led to a big USA import business in salvaged Japanese Honda engines, for example, with only 35Kmiles. Some of these JDM exclusive engines are more advanced than the exports.

Jun 10 02:07 PM

[berated:]

Thx, Tiny Tim. I knew about the website, but was curious whether they would use mfg's "tested" mpg from when the car was new or whether they'd use a 'prorated' number after the car had been in service for several years (assuming a bit of a decrease over the years) or if the car was not maintained properly, etc.

Jun 10 03:25 PM

[The Betsy:]

Good question.
Also, clunker must be owned for a minimum of one year by trading party. This means I can't sell you my 1985 Mazda for you to trade in to the dealer for you to get the voucher and new car. She's still getting 33 mpg but without a working odometer, only her mother knows for sure. I'm not sure why this old body can't pass the clunker criteria.


On Jun 10 12:44 PM berated wrote:

> How will they calculate the mpg of the trade-in vehicle?

Jun 10 06:03 PM

[Mad Hedge F...:]

It's been a great value for money program. Perhaps it was the newspaper gene in me that made me screech my car to a halt when I saw a near riot in progress at my local total Toyota dealer. The showroom was more jammed than the unemployment office, with eager salesmen recalled from vacations manning card tables set up in every available space. I managed to grab one peripatetic salesman by a lapel, who gushed that they sold 45 cars yesterday, compared to ten for a normal Friday, and that 35 of these were due to the Cash for Clunkers program. Sure I could get a $4,500 credit for my 1995 BMW (17 mpg), and apply it to a new Prius (50 mpg), taking the price down to $19,500 and the monthly payment to $450/month for five years. In fact, the government stimulus program was so successful, that it ran out of money in the first four days, and congress rushed to triple it to $3 billion on Friday. It was like the survivors of a ship torpedoed at sea were swimming frantically for the only piece of wreckage that floated. Assuming that the average car drives 10,000 miles a year, and the average swap generates a mileage improvement from 15 mpg to 27 mpg, junking 750,000 clunkers will save 30 million barrels of crude a year, 1.5 days of our total annual consumption, or three days of imports. I asked to see the cars that were traded in and was told that the lots for the dealer, the used cars, and the detailer were all full, but I could see some if I went to the Target nearby where they were renting extra spaces. There I saw the fleet condemned to clunkerdom, GM Safari’s, Jeep Cherokees, Buick Regals, Dodge Ram pickup trucks and vans, and Chrysler minivans by the dozen, all with “CFC” marked on their windshields, a certain death sentence. These sorry excuses for transportation will never belch blue smoke, nor drip oil on our interstates again. I can’t imagine a sorrier commentary on the management failure of the US car industry for the last 30 years.

Aug 01 04:34 PM