Congress moves to extend autos 'clunkers' plan

WASHINGTON/DETROIT (Reuters) - The U.S. Congress moved to triple the funding for the government’s successful “Cash for Clunkers” auto rebate program, which has brought car buyers back into showrooms and raised the outlook for an industry beset by abysmal sales, bankruptcies and job cuts.

The program, which gives drivers a rebate to turn in an old car to buy a new one, received a boost on Friday when the U.S. House approved $2 billion for it on top of the initial $1 billion approved in June to stimulate auto sales.

“The downward spiral has been broken,” said Mike Jackson, chief executive of U.S. dealership group, AutoNation Inc. “We saw a stabilization in sales in the second quarter, and there will be a recovery in automotive sales.”

Ford Motor Co shares closed up 61 cents, or 8.25 percent, to a new 52-week closing high of $8.00, as the rapid success of the program, initially funded with $1 billion, raised the outlook for the embattled auto industry. Ford shares were as low as $1.02 in November.

Automakers are due to report U.S. sales next week.

The speed with which consumers exhausted the clunker fund appeared to have caught the White House and Congress off guard, but President Barack Obama moved swiftly to call the program a boon to the economy.

The incentive program offers consumers up to $4,500 to trade in gas guzzlers for more fuel efficient vehicles. Trade-ins cannot be more than 25 years old or get more than 18 miles per gallon in most cases. The program was approved in June and was expected to last through October.

“The pace of sales has picked up dramatically,” Ford’s U.S. marketing and sales operations, Ken Czubay, said about business over the past month.

The U.S. Department of Transportation formally started collecting data and approving vouchers this week, but dealers were able to offer incentives beginning July 1.

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Government and industry officials estimated that sales of nearly 250,000 vehicles have been made over the past month.

“I wasn’t really looking for a new car, but that was a big incentive. That was the driving force to finally get rid of the old car,” said Michael Papa, a Detroit-area restaurant owner.


Obama administration officials considered suspending the program on Friday but opted to keep it going at least through the weekend.

“It has succeeded well beyond our expectations and all expectations,” Democrat Obama said during remarks on the economy. “We’re doing everything possible to continue this program.”

Analysts have said they expect the program to give the economy a bit of a lift in the current quarter.

Leaders in the U.S. House of Representatives swiftly pushed through the $2 billion extension of the program through September 30, 2010, despite opposition from some members who objected to new industry subsidies.

“Cash for Clunkers is another example of the government picking winners and losers and enshrines us as a bailout nation,” said Representative Jeb Hensarling, a senior Republican on the Budget Committee.

Traffic in a file photo. REUTERS/File

Representative Jeff Flake, another Republican, asked whether lawmakers were losing their minds.

The 316 House votes in favor sent a strong message to the Senate, which is expected to weigh the House bill next week before taking a month-long break. The House recessed on Friday for a month-long vacation.


Some senators signaled that approval might not be easy.

One member can block a bill in the Senate and there are different interests that could pose a challenge. For instance, Energy Committee Chairman Jeff Bingaman said he opposes the House proposal because it calls for spending unused Energy Department loan guarantees on the program.

Environmental champions in the Senate have urged members to strengthen requirements in the bill for fuel efficiency and pollution control.

Energy analysts played down the impact the program would have on reducing gasoline consumption.

Conservative budget hawks could also draw the line on more help for an industry that has already received tens of billions in federal assistance.

“It still potentially will be a lot of work to get it passed in the Senate,” said Democratic Senator Debbie Stabenow, a staunch auto industry ally and co-author of the original “clunker” proposal in the spring that sought $4 billion.

But White House spokesman Robert Gibbs said the administration was confident “we’ll have a solution.”

In addition to stimulating overall sales, the clunkers program was aimed at boosting sales of vehicles manufactured by General Motors Corp and Chrysler Group, both of which restructured under bankruptcy protection this year.

Very early indications showed that cars were selling better than pickups or sport utilities. But it was unclear how the program had affected Toyota Motor Corp and Honda Motor Co, which make the most fuel efficient passenger cars.

Ford sales analyst George Pipas said consumers have traded larger vehicles for smaller ones. “It is pretty dramatic,” he said.

Analysts expect the program, if fully utilized, to push U.S. sales above 10 million units for 2009, higher than the annual rate so far this year. Sales totaled 13.2 million units last year.

Himanshu Patel, a J.P. Morgan analyst, said the program revealed pent up sales demand and believes it is likely that carmakers will consider raising their own incentives if the government program is not renewed.

Reporting by John Crawley; Additional reporting by Rick Cowan, Steve Holland and Tom Doggett in Washington and David Bailey and Soyoung Kim in Detroit; Richard Valdmanis in New York; Editing by Toni Reinhold