The House passed legislation Tuesday afternoon that would authorize $4 billion for an auto trade-in program designed to boost demand consumer demand for cars and trucks. Germany was one of the first countries in Europe to offer such a program. One of the problems was that all the autos traded in for the rebate were to be junked. Many unscrupulous used car dealers tried to resell some of the vehicles that had been turned in for the rebate.
Economists Ulrich Blum and Sabine Freye, authors of the Halle Institute study admit the rebates may have prevented long-term damage to the auto industry if an extended downturn had continued. The German program has benefited Ford and a Polish company that makes economy cars. It has not benefited some German companies like Mercedes Benz and BMW who make luxury cars. A similar program in France was initially successful, but auto sales have been dropping off.
The vote was comfortably more than the two-thirds majority required to pass the bill under suspension of the rules for a fast-tracking.
The final bill (HR 2751) would provide to $4,500 in cash rebates to help people who trade in cars or SUVs with a combined fuel economy of 18 miles per gallon or less to buy newer, more fuel-efficient vehicles.
Movement on the legislation want to avert the closure of thousands of auto dealerships as Chrysler LLC and General Motors Corp. struggle to emerge from bankruptcy. Obama has endorsed the trade-in concept.
Rep. Chris Van Hollen, D-Md., House Majority Leader Steny Hoyer, D-Md., and more than 100 other lawmakers wrote to Obama late last week, threatening legislative action if the dealers are forced to close. Some lawmakers want to change laws so that auto dealers will be protected by state motor vehicle franchise laws. The auto makers would likely oppose such legislation because some of these auto dealers have sweetheart dealers that have hurt the auto industry for years.
It is also interesting that the auto dealers would have such influence over House Democratic leaders. MSNBC estimated that 80 per cent of auto dealer political contributions go to Republicans.
The one-year trade-in program would start upon enactment of the legislation, rather than being retroactive. Vehicles made before model year 1984 would be ineligible for the rebate. The compromise also reduced a proposed fine for violating any provision of the legislation to $15,000 from $25,000. This is a bad idea in view of the problems in Germany with used car dealers truing to resell the autos traded in for rebates.
Under the bill, consumers could receive a voucher for up to $4,500 for the purchase or lease of a new, fuel-efficient passenger car, SUV or truck upon trading in an eligible vehicle.
To receive a $3,500 voucher, the consumer must purchase a new car that gets at least four more miles per gallon more: for $4,500, the new car must have a mileage rating at least 10 mpg higher.
For a light-duty truck or SUV, the old truck must have a mileage rating of 18 mpg or less. To receive a $3,500 voucher, a consumer must purchase a new vehicle rated at least 2 mpg higher. To receive a $4,500 voucher, the new vehicle must get at least 5 mpg more.
Large vans and pickups that are work trucks are also eligible for the program, but the requirements are different.
The bill would require that trade-ins be "crushed or shredded.” It would allow the person responsible for the crushing or shredding to sell off vehicle parts other than the engine block or the drive train.
Sen. Dianne Feinstein, D-Calif., has introduced alternative legislation in the Senate favored by some environmental advocates.
Minority Whip Eric Cantor, R-Va., criticized the bill for not not making used cars with good fuel economy eligible for the cash rebate, saying that families who can't afford to buy a new car "deserve the same opportunity." Cantor seems to be unable to see the forest between the trees.
-- Paul M. Krawzak contributed to this story.
www.cqpolitics.com/wmspage.cfm?parm1=5&docID=news-000003138156
www.businessweek.com/globalbiz/content/may2009/gb2009056_301566.htm
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