Published: August 06, 2009 11:48 pm      

Congress OKs $2B refill of 'cash for clunkers'

WASHINGTON — Congress sent President Barack Obama legislation Thursday night with an additional $2 billion for "cash for clunkers," the economy-boosting car rebate program that caught the fancy of car buyers and instantly increased sales for an auto industry long mired in recession.

The Senate approved the money on a 60-37 vote after administration officials said an initial $1 billion had run out in only 10 days. The House voted last week to keep alive the program, which gives consumers up to $4,500 in federal subsidies if they trade in their cars for new, more energy-efficient models.

Without action, lawmakers risked a wave of voter discontent as they left the Capitol for a monthlong vacation.

"Cash for clunkers has been a proven success," Obama said in a written statement issued shortly after the vote. "The initial transactions are generating a more than 50 percent increase in fuel economy; they are generating $700 to $1000 in annual savings for consumers in reduced gas costs alone, and they are getting the oldest, dirtiest and most air polluting trucks and SUVs off the road for good."

Senate supporters of the program hailed its effect on the auto industry — which had its best month in nearly a year in July — as well as its claimed environmental benefits.

"The reality is this is a program that has been working. Consumers believe it's working. Small business people believe it's working. People who make steel and aluminum and advertisers ... and everyone who's involved in the larger economic impact of the auto industry believe it is working," said Sen. Debbie Stabenow.

The legislation had its share of critics, though, most of them Republicans.

"What we're doing is creating debt. ... The bill to pay for those cars is going to come due on our children and grandchildren," said Sen. Judd Gregg.

Officials said the program's initial $1 billion probably already has been spent, but a paperwork backlog prevented an accurate accounting. The additional $2 billion is enough to help consumers purchase a half-million more new cars, they added.

There was no suspense about the outcome in the Senate, where supporters of the legislation focused their energies on defeating all attempts at amending the measure. Passage of any changes would effectively scuttle "cash for clunkers," they said, since the House has already begun a summer vacation and is not in session to vote on revisions.

An attempt by Sen. Tom Harkin to limit the program to lower and middle-income consumers was jettisoned on a vote of 65-32. Gregg's call for Congress to offset the $2 billion with spending cuts elsewhere also failed, 51-46.

On the final vote, 51 Democrats, two independents and seven Republicans supported the bill, while 33 Republicans and four Democrats opposed it.

The Senate's debate capped an unusually swift response by lawmakers, who were informed scarcely a week ago that the program was quickly running short of money.

The government said Wednesday that more than $775 million of the original funds had been spent, accounting for the sale of nearly 185,000 new vehicles. Administration officials estimate the extra funding will last into Labor Day.

Under the program, passenger car owners are eligible for a voucher worth $3,500 if they trade in a vehicle getting 18 miles per gallon or less for a new car getting at least 22 mpg (9.35 kpl). Vouchers of $4,500 are available for owners who trade in a passenger car getting 18 mpg (7.65 kpl) or less for a model that gets at least 28 mpg (11.9 kpl).

There are similar guidelines for SUVs and pickup trucks.

Dealers are barred from reselling the trade-ins and are charged with ensuring their destruction.

Jeremy Anwyl, CEO of the auto Web site Edmunds.com, said the unintended result is that vehicle prices are climbing.

"What we've created now is a shortage for key models," he said. "Prices are going up dramatically."

Hyundai Motor Co. has added a day of production at its Montgomery, Alabama, factory, while Ford Motor Co. and GM are considering following suit.

Tom Stephens, vice chairman of product development at GM, said in an interview that the company has had spot shortages of compact and midsize cars, which have been popular with consumers jettisoning their clunkers. The company also reported an increase in sales of the Chevrolet HHR small sport utility.

"Consumer confidence is really what you need here," Stephens said. "It's hard for them if they don't know if they have a job or a for-sure paycheck to go out and make a major purchase, so I think this is kind of jump-starting some things."

The longer-term impact of the program is less clear.

"Once these clunker rebates expire, it is over," predicted economist Richard Yamarone of Argus Research. "Consumers are not going to keep buying cars. It is a temporary one-time gimmick, not a long-lasting tonic for the recovery."

In the program so far, GM's share of cars sold is largest, accounting for 18.7 percent of new sales. Toyota Motor Corp. followed with 17.9 percent, while Ford had 16 percent. Detroit automakers represented 45.3 percent of the total sales, while Toyota, Honda Motor Co. and Nissan Motor Co., all Japanese firms, totaled 36.5 percent.

Toyota also has the best-selling new model for traders of clunkers, the Corolla. The Ford Focus, Honda Civic, Toyota Prius and Toyota Camry are also favorites. There is one SUV on the list, the Ford Escape, which also comes in a hybrid model that can get up to 32 mpg. Six of the top-10 selling vehicles are built by foreign manufacturers, but most are built in North America.

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Associated Press writers Ken Thomas and Jeanine Aversa in Washington, Tom Krisher in Traverse City, Michigan, and Dan Strumpf in New York contributed to this report.



Copyright 2009 The Associated Press.