‘Cash-For-Clunkers’ Prospects Bolstered by Feinstein (Update1)

Aug. 4 (Bloomberg) -- Prospects that the U.S. Senate will add $2 billion to the “cash for clunkers” program increased when two senators who had said the auto discounts provide too few environmental benefits changed their minds.

Dianne Feinstein, a California Democrat, and Susan Collins, a Maine Republican, committed their support for more funds after the Obama administration said yesterday that the average fuel economy of vehicles purchased under the program increased 61 percent compared with the cars and trucks traded in.

“This program has done much better than we ever thought it would for the environment,” Feinstein told reporters. “The best solution is to continue the program as-is.”

Vehicles to be scrapped under the cash for clunkers, aimed at boosting U.S. new car sales, averaged 15.8 miles per gallon, compared with 25.4 miles per gallon for the new vehicles purchased, according to Transportation Department data.

A burst of demand exhausted most of the program’s initial $1 billion in less than a week. The House voted 316-109 on July 31 for an emergency measure backed by President Barack Obama that would add $2 billion to the program to keep it going. Senate Majority LeaderHarry Reid, a Nevada Democrat, hopes his chamber will act on the measure this week, spokesman Jim Manley said yesterday.

Named the Car Allowance Rebate System, the program provides credits of as much as $4,500 for the purchase of a new car when turning in an older vehicle to be junked. Lawmakers had expected the first $1 billion to generate about 250,000 vehicle sales and last until about Nov. 1.

133,767 Applications
The Transportation Department said today that it had received 133,767 dealer applications for funds totaling $563.8 million through yesterday, as the agency works through a backlog that reached hundreds of thousands of online submissions.

The National Automobile Dealers Association urged its members yesterday to lobby senators for the measure’s passage.

“With the House out of session, any changes to the clunker program made by the Senate will kill the bill and force the Department of Transportation to suspend the program,” the McLean, Virginia-based association told its almost 17,000 members. The House has begun its August recess, and the Senate is scheduled to do so after this week.

Some dealers are already withdrawing from the clunkers program because they fear they won’t be reimbursed after the initial $1 billion runs out, the dealers’ group said in letters to lawmakers.
Doubling Workers

The Transportation Department said yesterday it is doubling the number of contract workers to process transactions in an attempt to clear a backlog of dealer applications that grew to hundreds of thousands. The waiting applications led to complaints from dealers who spent hours trying to apply for reimbursement online and to confusion about how much of the $1 billion had been spoken for.

The government was caught off-guard by the interest in the program, Transportation Secretary Ray LaHood said in an interview on CNN yesterday.

“As we ramped up, we were shocked at the number of people who came into showrooms,” he said. Adding $2 billion would keep the program running through August, LaHood said. Senator John McCain, an Arizona Republican, said he will try to amend the measure when the Senate debates it by mandating “a pause while we find out how it’s working.”

“I’m strongly opposed to the program, but I won’t filibuster it,” McCain said yesterday in Washington.

Issues to Resolve
There are “issues we need to resolve” before voting on more funds, Reid told reporters yesterday. In the end, he said that “the options are: we pass it or we don’t pass it.”

Vehicles made by the three largest U.S. automakers -- General Motors Co., Ford Motor Co. and Chrysler Group LLC --were fewer than half of sales under the program through Aug. 1, according to Transportation Department data obtained yesterday. The companies accounted for 47 percent of the clunkers transactions.

Source: Bloomberg
August 4, 2009

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