"Cash for clunkers" gets a $2 billion boost

WASHINGTON Fri Aug 7, 2009 1:17pm EDT

1 of 6. Smokes comes from the engine of a 'clunker' that is being permanently disabled as part of the U.S. government's 'Cash for Clunkers' program at Clark Chrysler Jeep dealership in Methuen, Massachusetts August 7, 2009.

Credit: Reuters/Brian Snyder

WASHINGTON (Reuters) - The U.S. Senate approved and sent to the White House on Thursday a $2 billion extension of the "cash for clunkers" autos sales incentive program.

The measure, approved by 60 to 37, extends the successful program that has raised sales of the U.S. auto industry.

President Barack Obama was expected to sign it quickly.

The initial $1 billion of funding approved in June for "clunker" business has generated more than $920 million in rebates and more than 220,000 in auto sales.

Supported by the incentive program, U.S. auto sales overall were down about 12 percent in July from a year earlier, but it was their best performance this year.

The program offers consumers a federally backed rebate of up to $4,500 if they trade in old vehicles for new, more fuel efficient ones.

Supporters of the extension defeated several Republican amendments aimed at derailing the plan in the Senate.

Richard Shelby, the top Republican on the Senate Banking Committee, said the program "has squeezed months of normal activity" into a short period of time.

"When the backlog is met, interest in the program will fade, and the facade of economic benefit will disappear," Shelby said.

But Obama said in a statement after the Senate vote that the economy "will continue to get a much-needed boost" from the program.

Major automakers said in a letter to senators the current $1 billion program has helped their companies, suppliers, scrap yards, steel producers and other small businesses.

"There is no question that 'cash for clunkers' has succeeded," said Dave McCurdy, chief executive of the Alliance of Automobile Manufacturers, the chief trade group for General Motors Co, Chrysler LLC, Ford Motor Co, Toyota Motor Corp and other big carmakers.

Domestic and overseas manufacturers have so far split the "clunker" market. More fuel efficient passenger cars have outsold sport utilities, pickups and vans.

The administration, stunned by the swift success of the initiative and stung by a series of administrative glitches in trying to process rebates, had warned that the "clunker" measure would be suspended if more money was not approved by week's end.

The House of Representatives passed the $2 billion extension on July 31. The Senate took a week to affirm that action.

The outcome reflected the national reach of the auto industry and related businesses, and the persuasiveness of dealers who employ thousands and contribute generously to political campaigns.

Bailey Wood, director of legislative affairs for the National Automobile Dealers Association, said future demand is an open question, but added showroom traffic remains strong and non "clunker" sales are up as well.

Barclays Capital analyst Brian Johnson expects the "clunker"-related lift in the industry's annual sales rate and production in the second-half of the year to continue.

Detroit and overseas automakers that make at least some of their vehicles in the United States have been quiet on production increases.

Economists see the "clunker" program boosting third-quarter growth, and several firms including Goldman Sachs have recently raised their GDP forecasts.

(Reporting by John Crawley, Donna Smith and Emily Kaiser in Washington; David Bailey and Soyoung Kim in Detroit; editing by Andre Grenon, Toni Reinhold and Carol Bishopric)

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