“Cash for Clunkers” Program Intends to Stimulate Fuel Efficient Auto Sales

Brian Severin
Posted on Thursday 18th June 2009

Despite strong opposition from Republicans, the Senate passed bill H.R 2346, which included the “Cash for Clunkers” Program, with a vote of 60-36. The “Cash for Clunkers” Program will provide government incentives to motorists ranging from $3,500 to $4,500 for trading in their gas guzzling vehicles for a more fuel efficient model. The total value of this program is one billion dollars and is designed to help the struggling auto industry by brining customers into local car showrooms.

Last week the House of Representatives passed the “Cash for Clunkers” Program on a vote of 298-119 and then Senate Democrats attached it to the war spending plan (bill H.R. 2346). The bill received support from President Barack Obama and Vice President Joe Biden, who made calls to Democrats sitting on the fence urging them to keep the plan alive – ultimately the bill was passed and now goes to the White House for the President’s signature.

Opponents of the program expressed concern that it would increase the federal debt without making significant strides to remove fuel inefficient vehicles off the roads. President Obama encouraged Congress to approve the consumer incentives for new fuel efficient car purchases as part of the government’s efforts to restructure GM and Chrysler. The program will run from July through November and provides one billion dollars in incentives and will be implemented by the Transportation Department.

The auto industry and its union lobbied heavily for the passage of this program as auto sales have been lagging. The U.S. Auto Industry is expected to generate nearly 9.5 million vehicles sales this year, compared with over 13 million in 2008 and more than 16 million in 2007. Under the proposal, car owners could receive a voucher worth $3,500 if they traded in a vehicle getting 18 miles per gallon or less for one getting at least 22 mpg. The value of the voucher would increase to $4,500 if the mileage of the new car was 10 mpg higher than the old vehicle based on the mileage posted on the new car’s window sticker.

Owners of sport utility vehicles, pickup trucks or minivans that get 18 mpg or less could receive a voucher for $3,500 if their new truck or SUV got at least 2 mpg higher than their old vehicle. The voucher would grow to $4,500 if the mileage of the new truck or SUV was at least 5 mpg higher than the older vehicle.

The bill directs dealers to ensure that the older vehicles are crushed or shredded to get the clunkers off the road. The program was intended to help replace older car models from 1984 or later. The program doesn’t make financial sense for consumers owning an older car with a trade-in value greater than $3,500 or $4,500.

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