Auto Industry Mixed Over Approval of Cash for Clunkers

By Joe Overby, Staff Writer
June 22, 2009

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WASHINGTON, D.C. — The Cash for Clunkers bill gained Senate approval late last week and was passed on to President Obama, who was widely expected to sign it into law, as of press time.

News of the bill's passing generated mixed responses from all sides of the auto industry, as various leaders had different viewpoints on its effectiveness and fairness.

Proponents touted its potential to revive new-vehicle sales and to reduce harmful emissions, while opponents questioned whether or not it will work. Some say it will hurt used-car dealers, as the rebate cannot be put toward late-model used units, thus potentially lowering demand (and perhaps prices) of these units.

As most know, the program would provide up to $4,500 for consumers to trade in vehicles with fuel economies of less than 18 miles per gallon for a more fuel-efficient model.

If the president signs the bill into law, the National Highway Traffic Safety Administration would then have 30 days to develop the rule to implement the program and create an informational Web site.

In light of these developments, several auto organizations, executives and analysts shared their thoughts and reactions to the legislation on Friday.

NADA Chair Commends Cash for Clunkers

Beginning with the National Automobile Dealers Association, the organization said it has been working with NHTSA and has held several conference calls and meetings to address the bill.

The organization plans to continue working with NHTSA to make sure that the regulations are implemented as quickly as possible.

"NADA applauds congressional action on a fleet modernization program that will boost consumer confidence, get the economy going again and reduce our dependence on foreign oil," NADA chairman John McEleney stated

"By approving a Cash for Clunkers program today, Congress is giving consumers a strong incentive to replace their older vehicles with new, more fuel-efficient cars and trucks," he added. "With families struggling in this economy, giving them an additional $3,500 to $4,500 to apply toward their down payment will put a new vehicle purchase in reach for many.

"With more fuel-efficient vehicles on the road, it will also help reduce the nation's dependence on foreign oil," McEleney continued. "A spike in new car and truck sales will also help communities that rely on the revenue from vehicle sales taxes and other fees to fill their budget shortfalls."

Various OEM Execs Offer Support

Moving on, the chiefs of both Mazda and Volkswagen echoed NADA's sentiment for Cash for Clunkers.

VW officials, for instance, pointed out the success of a similar program in Germany, and said it helped attract many new customers to the brand.

"Volkswagen of America supports this historic decision of the United States Government to enact the Cash for Clunkers program," shared Stefan Jacoby, president and chief executive officer of Volkswagen of America.

"The fact that Volkswagen has long been known for producing fun-to-drive, fuel efficient vehicles, combined with our eight Top Safety Pick rated vehicles by the IIHS, should put Volkswagen on any new-car buyers shopping list," he continued.

Meanwhile, Jim O'Sullivan, president and CEO of Mazda North American Operations, expects the program to be beneficial for consumers, the environment and the economy.

"Mazda applauds Congress for passing the fleet modernization, or Cash for Clunkers, bill that will essentially put cash in the hands of the consumer and increase vehicle sales at a time when demand is extremely depressed," he commented. "Additionally, older, less fuel-efficient models will be replaced by newer ones that are cleaner for the environment.

"Fleet modernization legislation has already shown positive results around the world, where 15 countries have enacted similar programs," O'Sullivan added. "We look forward to comparable results here in the United States."

Some Say Program is Unfair, Inefficient

But some organizations and leaders within the industry have strongly voiced their opposition to the bill.

David Pilcher, executive vice president of National Car Sales, emphasized that his "heart goes out" to new-car dealers and said he understands their struggles, but finds the bill to not only be incomplete, but harmful.

"To the extent that this legislation helps new-car dealers in these tough times, it's a good thing. But to step back, it's faulty and short-sighted. And it didn't have to be," Pilcher told Auto Remarketing on Friday.

For one, he said it was unclear whether the legislation's main objective was to help new-car sales or to help reduce vehicle emissions.

"For the effectiveness of the objective of reducing emissions ... that objective would have been enhanced to include late-model used cars that fit the same (requirements)," he explained.

Essentially, Pilcher argued that the federal tax dollars of late-model used-car dealers are going to something that may negatively impact their business.

"And that very program will take away sales from the late-model used cars. It's like a knife in my back, very unfair," he commented. "It's the result of the government meddling in a market and not understanding the domino effect."

Also, since the bill's incentive is likely to push down the value of one- to two-year-old vehicles, it could hurt rental companies when they return these units to the market, Pilcher added.

Continuing on, Mike Linn, chief executive officer of the National Independent Automobile Dealers Association, also told Auto Remarketing that his organization does not support the legislation.

"NIADA's position has been that we were not in favor of the bill in any form. We felt market conditions would eventually take care of sales across the board," Linn explained.

"Most consumers, not being allowed to ‘trade up,' will find they do not qualify for a new-car loan because of current lender requirements," he continued. "In the world of ‘supply and demand,' new-car sales generate trade-ins, which generates more used cars, allowing our used-car dealers to benefit from a new supply of vehicles which also keeps wholesale volumes and pricing more reasonable based on market conditions."

Edmunds.com Suggests Success Likely to be Limited

Furthermore, some believe the bill just won't achieve its desired results. Analysts with Edmunds.com said the program will likely struggle to reach the goal of 250,000 additional vehicle sales, primarily for two reasons.

First, most of the qualifying "clunker" trade-ins are more than 10 years old, officials noted. Many of these vehicle owners don't wish to have an increased monthly payment or simply can't afford to buy a new ride.

Second, Edmunds.com suggested the requirement mandating that consumers own the clunker for at least one year is "ill considered."

If new-car buyers were allowed to purchase clunkers simply for the purpose of participating in the program, it could "ignite waves of economic activity and still achieve the bill's environmental goals," Edmunds' officials argued.

Furthermore, some consumers might benefit more from selling or trading in their used vehicle.

"If you can get more than $4,500 for your vehicle, you're better off selling it or trading it in without taking advantage of the Cash for Clunkers rebate," stated Edmunds.com editor-in-chief Karl Brauer.

Jeremy Anwyl, Edmunds' CEO, added: "Similar legislation has seen success in Europe because European new-vehicle buyers keep their vehicle considerably longer than those in the U.S.

"But in the end, this is a non-event," he continued. "Even 250,000 new vehicles sales will not provide the impact needed for an industry looking for at least 5 million in additional sales."