(The US) cash-for-clunkers program that starts in July in the United States is not expected to have nearly the same impact (as similar programs in Europe). While the program, which President Obama signed into law this week, gives consumers a credit that is in line with the payments in Europe — up to $4,500 — what qualifies as a “clunker” in the United States is far more limited.
Further, the American program has $1 billion in financing, enough for about 250,000 consumers to use it, and ends Nov. 1, or sooner if the money runs out. Germany, on the other hand, originally expected to spend 1.5 billion euros to get 600,000 old cars off the road. But the program proved so popular, the government this spring raised the budget to 5 billion euros for two million cars and extended the deadline to the end of 2009.(…)
The program, formally known as the Car Allowance Rebate System, is aimed at reducing fuel consumption by removing older, gas-guzzling vehicles from the nation’s roads. The cars and trucks turned in will be scrapped and their owners given a credit of either $3,500 or $4,500 toward a new vehicle. The amount of the credit depends on the fuel-efficiency rating of the new vehicle. The official Web site for the program is cars.gov.
In Europe, where nearly a dozen European countries have clunker programs, the details vary. But generally, the programs require only that the vehicle being turned in is old. In Germany, eligible cars have to be at least nine years old, and the subsidy covers the purchase of any new car, regardless of its size or fuel efficiency.
The American program, by contrast, is far more complicated. To qualify, consumers must turn in a vehicle that is no more than 25 years old and has a combined city and highway fuel economy rating of no more than 18 miles per gallon, as calculated by the Environmental Protection Agency. The E.P.A. lists vehicles’ ratings at the Web site FuelEconomy.gov.
The old vehicle must be drivable, and it must have been insured by and registered to the same person for at least the last year, preventing shoppers from buying an old car and flipping it to get a discount on a new vehicle. The credit cannot be applied toward a used vehicle or toward new vehicles that cost more than $45,000.
To get the full $4,500 credit, consumers must buy either a new truck or sport utility vehicle that is rated at least five miles per gallon higher than the scrapped vehicle or a passenger car that is rated at least 10 miles per gallon higher than the scrapped vehicle. Because the old vehicle will be destroyed, the credit is given instead of the regular trade-in value — not in addition to it — though some dealers might compensate customers for the vehicle’s scrap value.
The rules mean that the owner of a 2003 Chevrolet Trailblazer, which qualifies because it gets about 16 miles per gallon, would get nearly $2,000 less under the program than by making a normal trade-in. Conversely, a 1992 Honda Civic, which is worth only a few hundred dollars, does not qualify because its gas mileage is too high.
“It has to be worth not very much and it also has to get very poor E.P.A. fuel economy,” said Jack R. Nerad, the executive editorial director and market analyst for Kelley Blue Book. “It’s a fairly narrow profile. You’re talking about people who are probably economically challenged to begin with and they have to be able to qualify for a new car purchase in the midst of a deep recession. Those are some difficult parameters.”(…)
The day the program starts is still to be determined. The law states it will be whenever the National Highway Traffic Safety Administration finishes its rules for the program, which it must do within 30 days of the law’s being signed on June 24. (The cars.gov site says to “contact your dealer in mid-July.”)
From David Rosenberg:
The growth bulls claim that vehicle sales are going to zoom ahead in coming months as the Obama ‘Cash for Clunkers’ gimmick kicks in. Well, there’s a nifty article in this topic on page 26 of BusinessWeek, citing analysis by Standard & Poor’s that the maximum impact on unit sales will be 3.0%, which is rounding error. The reasons:
•The Federal government has approved just $1 billion for the program. That is equivalent to 250,000 autos or basically a week’s worth of current sales levels.
•The program will run from August to November, so it is very short-term in nature.
•The government will cut cheques of between $3,500 and $4,000 to dealers so they can buy old cars that get 18 miles per gallon or less and then sell the owner a more fuel-efficient replacement. But the problem is that most cars on the road already get more than 18 mpg, so they won’t qualify. In addition, while there are a lot of old cars that will qualify, the question is whether, even with a $4,500 discount, the owners will want to take new car payments at a time of rising unemployment rates and declining wage rates.
