Cash for Clunkers: Sales Boom If Quick; Bust If It Stalls
May 08, 2009
SANTA MONICA, Calif. -- A Cash for Clunkers program edging its way through Congress could create a desperately needed sales boom for automakers and their dealers if Congress moves quickly, according to Edmunds.com's analysis.
However, if legislation lingers in Congress too long, new-car sales could stall as consumers wait for the final program to be passed.
"Congress needs to pull the trigger," says Edmunds.com CEO Jeremy Anwyl. "The more the publicity on Cash for Clunkers, the more likely sales will drop off as people wait."
The U.S. House this week agreed to proceed with a Cash for Clunkers program. The current legislation calls for paying government vouchers worth between $3,500 and $4,500 to consumers who buy a new vehicle that gets better mileage than the one they trade in. The current proposal limits the program to approximately 1 million vehicles.
But the demand could be higher -- possibly as high as 3 million vehicles for the year, says Anwyl.
"Just the people who have been turning to used cars instead of new ones because they think the used vehicle is a better value could amount to 1 million to 2 million potential new-car sales," Anwyl says.
In addition, a cash-for-clunkers offer could push some buyers into the new-car market who have been standing on the sidelines feeling less well-off because of the drop in the value of their house and stock portfolios or the belief that they can't get a car loan.
The Cash for Clunkers program, patterned after successful ones in Europe, particularly Germany, have been positioned as both an economic stimulus and an environmental effort. But Anwyl suggests Congress needs to keep the intent of any legislation simple; in that, its goal should be to boost vehicle sales. "Congress needs to do something to deal with the crisis in demand first and foremost," he says.
Passage of a Cash for Clunkers measure remains weeks away. The current House legislation has been folded into a broader energy package and will be in committee for another two weeks. Then it goes to the Senate where it undoubtedly goes through changes.
Here's the House proposal as it currently stands:
Passenger cars: The old vehicle must get less than 18 mpg and the new one at least 22 mpg. If the mileage of the new car is at least 4 mpg higher than the old one, the consumer receives a voucher worth $3,500. If the mileage of the new car is at least 10 mpg higher than the old vehicle, the consumer gets a voucher for $4,500.
Light-Duty Trucks: The old vehicle must get 18 mpg or less. New light trucks or SUVs with mileage of at least 18 mpg are eligible for vouchers. If the mileage of the new truck or SUV is at least 2 mpg higher than the old truck, the consumer gets a $3,500 voucher. If the mileage of a new truck or SUV is at least 5 mpg higher than the old truck, the consumer gets a voucher for $4,500.
Large Light-Duty Trucks: New large trucks (pickup trucks and vans weigh in between 6,000 and 8,500 pounds) with mileage of at least 15 mpg are eligible for vouchers. If the mileage of the new truck is at least 1 mpg higher than the old truck, the voucher will be worth $3,500. If the mileage of the new truck is at least 2 mpg higher than the old truck, the voucher will be worth $4,500.
Work Trucks: Consumers can trade in a pre-2002 work truck (defined as a pickup truck or cargo van weighing from 8,500 to 10,000 pounds) and receive a voucher worth $3,500 for a new work truck in the same or smaller weight class. There will be a finite number of these vouchers, calculated on the market share of the vehicle class. There are no EPA mileage measures for these trucks. However, because newer models are cleaner than older models, the age requirement ensures that the trade will improve environmental quality. Consumers can also "trade down," receiving a $3,500 voucher for trading in an older work truck and purchasing a smaller light-duty truck weighing from 6,000 to 8,500 pounds.
Posted by Michelle Krebs at 4:15 AM under Analysis , Commentary , Companies | Comments (8) | digg this | Seed Newsvine
I'd love to see this go through! Great for the economy, great for recycling and great for lowering fuel consumption.
Posted by: sylvia | May 08, 2009 at 8:19 AM
Just what we need, more government interference in the marketplace. And remember, when the story says that the government pays, that mean you and I, the taxpayers are on the hook for subsidizing new car purchases.
Thanks, but no thanks!
Posted by: outskiing | May 08, 2009 at 12:20 PM
It looks like they took out the used car purchase & public transportation voucher provisions from the original bill proposal.
But they also cut it back from a four year program to a one year program, so it will expire right when all the new 2011-12 high mpg vehicles we read about and see at the auto shows come to market.
If your trade gets better than 18 mpg you get nothing. Pretty much excludes anyone currently owning any Honda car, and a good portion of other makes.
My lease comes up this month on my '06 Mercury Milan V6. 20/28 EPA rating when new. I can go month to month for a while until Congress gets this deal passed.
In the meantime, I think I'll scrounge up an old Crown Vic ex squad car for 50 bucks to use for the voucher.
Posted by: fulcrumb | May 08, 2009 at 11:24 PM
Still no info on whether the voucher will work if you trade a guzzler truck for a CAR.
Posted by: stephen987 | May 10, 2009 at 6:50 AM
I sincerely hope this bill doesn't pass, and I urge everyone to contact their congressmen and senators to try to stop passage of this bill.
As someone said earlier, this is just more government interference in the marketplace, and furthermore, penalizes those of us who were responsible and bought energy efficient vehicles, and benefits those who were irresponsible and bought gas guzzlers.
Now, those of us who were responsible will be forced to subsidze this program (through our tax dollars), and also will pay higher prices when we want to buy a new car (since this is effectively a subsidy for carmakers, it will cause selling prices to stay higher than they ordinarily would). We get hit twice. I'm tired of bailing out irresponsible people.
Please contact your congressman and tell them to vote no on this unfair legislation.
Posted by: ccappa | May 10, 2009 at 5:54 PM
What mileage figure is being used? EPA city, hwy, combined?
Posted by: aohurst | May 10, 2009 at 7:15 PM
I found it. It's EPA combined mileage....
Posted by: aohurst | May 10, 2009 at 7:19 PM
I am in car sales and am concerned that recent sales have nearly stopped. People have heard of this proposal and will not consider buying now due to the possibilty of additional savings created by this new bill. Please contact your congressmen and urge them to speed up the process. The car industry is already hurting and this is only creating more reluctance in the car buying process. They also need to distinguish if this applys to used and new cars. I understand the bill may aid in car sales but in the meantime while they dilly dally on the hill this is creating more harm than good!!!! Please help us!!!!!!! Regards KK
Posted by: kenneys69 | June 11, 2009 at 8:22 AM