March 17, 2009 - Big Three Automakers and UAW, Detroit MI

Detroit Big 3 and UAW unite in support of cash for clunkers

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Detroit’s automakers and the UAW united today for the first time in support of a “cash for clunkers” program that would pay vehicle owners to trade in old models for new, fuel-efficient ones.

The hurdles to passing any such plan through Congress remain formidable, with foreign automakers, environmental groups and dealers all holding different views on how such a plan should work. Yet most of the Detroit industry’s troubles can be traced to slumping auto sales of about 10 million vehicles a year, which aren’t expect to rebound until next year at the earliest.

General Motors Corp. Chairman Rick Wagoner said today that such programs could have a “huge impact," on boosting sales, citing similar moves in Germany and Brazil that increased sales last month while the rest of the world’s auto industry struggled.

“We do see some well-thought out programs, and it would be very helpful to do that in the United States,” Wagoner said.

The chief advisor to President Barack Obama’s auto task force told the Free Press on Monday that the panel had considered such measures, but would have to rely on Congress to put anything into place, or for the broad economy to recover on its own.

“We don’t, unfortunately, really have the ability in the near term on our own as the task force to meaningfully affect demand for cars,” said advisor Steven Rattner.

The bill unveiled by Rep. Betty Sutton, D-Ohio, would offer $3,000 to $7,500 to owners of vehicles at least eight years old to buy more efficient models, depending on how fuel efficient the new models were.

The program would only apply to new vehicles built in North America, with cars having to hit at least 27 miles per gallon on the highway if built in the United States and 30 m.p.g. if built in Canada or Mexico. Truck models would have to make 24 m.p.g. on the highway.

The old vehicles traded in under the program would have to be crushed or recycled. And in a nod to plug-in hybrids such as the Chevrolet Volt, the bill would offer a $7,500 voucher toward any U.S.-made vehicle that garners 100 m.p.g.

All the new vehicles would have to carry sticker prices less than $35,000.

Similar plans have foundered on cost concerns and questions of how to distribute the aid among domestic and foreign automakers. Backers of the bill say it would cover most of the cars built by foreign automakers in North America; by one analysis of last year’s sales, the automaker with the most vehicles covered by the plan would be Toyota Motor Co.

GM spokesman Kerry Christopher said the Sutton bill was a “good starting point” for a scrappage plan. Ford Motor Co. said in a statement that the bill was “a win-win-win for consumers, the environment and energy independence,” while a Chrysler spokeswoman said it backed the plan as well.

UAW Legislative Director Alan Reuther said the union backed Sutton’s plan, saying it “would help to stimulate auto sales, and thus would help support jobs for American workers in the auto industry.”

Original Story - Detroit Free Press

Additional Story - March 19, 2009

To put a stop to sliding auto sales that were dragging down Germany's stalwart automakers, the German government offered drivers a few thousand dollars to scrap their old cars and buy new ones. In February, while auto sales fell throughout Europe, German auto sales jumped 21 percent.

Now the United States is contemplating whether such a tactic can work here, where sales have plummeted to the lowest levels in more than two decades.

Rep. Betty Sutton (D-Ohio) introduced a new spin on the concept on Tuesday in an effort to battle the steep decline in auto sales that's pushing car companies deeper into the red. Under her bill, the government would buy cars and trucks that are at least eight years old and send them to the scrap heap or to be recycled for parts and materials. The owners would receive vouchers worth $3,000 to $7,500 to buy more fuel-efficient North American vehicles or use mass transit.

New cars must meet a minimum of 27 miles per gallon on the highway and trucks must meet 24 mpg. The better the fuel efficiency, the bigger the payout. And the sticker price on the new car can be no more than $35,000.

To some, the program has the potential to help strapped automakers, tackle climate change and stimulate the economy -- all in one fell swoop. By encouraging people to ride mass transit and buy more efficient cars, it has the backing of environmentalists, public transit officials and economists.

But to others, the proposal violates trade agreements and threatens jobs by reducing vehicle repairs. The Automotive Aftermarket Industry Association argues that by taking cars off the road, the proposal would reduce the supply of used cars and effectively push up the price of those that remain.

Dubbed cash-for-clunkers, the program gained traction last fall as the U.S. economy slumped, auto sales began to plummet and Detroit's automakers fell into disrepair. But an earlier version failed in Congress as car collectors argued against destroying cars they rely on for parts and the United Auto Workers voiced concern that the proposal would finance purchases of foreign-made cars and trucks.

Sutton's bill, which has the support of Detroit's automakers and the UAW, attempts to subdue criticism by only subsidizing new vehicles made in North America, whether the company is based here or not. Car owners can fetch higher payments if they plan to buy a car made in the United States, rather than Canada or Mexico.

"It's fair to all major automakers, but gives incentives for the domestic production of vehicles that ensures jobs will be created in this country," said Alan Reuther, legislative director for the union.

Yet, it won't cover popular hybrid cars like Toyota's Prius, which is assembled in Japan, putting some dealers who sell imported international brands at a disadvantage. Barbara Nocera, Mazda's director of government and public affairs, charges that it violates several trade agreements.

"The 'Buy American' requirements of the Sutton Bill violate the WTO and NAFTA and discriminate against some of the most fuel-efficient vehicles sold in the U.S.," she said in a statement.

Aaron Lowe, vice president of government affairs for the aftermarket association, said people who own clunkers usually are not in the market to buy new cars. For instance, when Texas offered a similar incentive, about 60 percent of those who turned in old cars bought used vehicles.

"You can't offer someone that money and really expect they can afford something better they already have," he said. "At $3,000 or $4,000, what more can they buy?"

Critics argue there's no way of stopping people from turning in cars that they rarely drive. Through a California exchange program, drivers receive $1,000 to retire any car that's failed a smog check, even though it could have been sitting idle for years.

In February, monthly U.S. auto sales fell 41.4 percent compared with the same month a year ago. And March sales haven't shown any signs of improvement.

"Clearly there's urgency in passing this bill with auto sales in a slump," Sutton said.

Yet Michael Stanton, president of the Association of International Automobile Manufacturers, said the debate needs to continue a little bit longer.

"It would be nice get one of these bills through that's equitable on all sides," he said. "The industry could use some help."

Original Story - Washington Post

Update Story March 31, 2009

In Europe, ‘Cash for Clunkers’ Drives Sales

Slovakia — The economy here may be in free fall, but anxiety about the future did not stop Vilo Hrivnak from driving his 12-year-old green hatchback to the junkyard a few days ago and promptly buying his first new car, a cappuccino-colored Skoda.

Like hundreds of thousands of car owners across Europe, Mr. Hrivnak was spurred to act by new government subsidies for drivers who junk their old jalopies — in his case 2,000 euros, or $2,655 — and trade up to a new model.

Slovakia is one of a nearly dozen European countries to unveil a so-called cash for clunkers plan in recent months, but the idea could soon get its biggest test yet in the United States, where President Obama endorsed a similar approach Monday to help beleaguered Detroit automakers.

The details and the size of the refund, typically 1,000 to 2,500 euros, vary from country to country and often reward the purchase of smaller, more fuel-efficient vehicles.

The plan has exceeded expectations. Car sales are now running at an annual rate of more than 13 million because of the subsidies, according to Stuart Pearson of Credit Suisse, well above the 11 million level where they started the year.

“It seems like an obvious thing to do in the U.S.,” said Mr. Pearson, adding that the average American car has been on the road for roughly nine years. “Rather than just giving companies cash to burn, it does keep people employed and stimulates demand.”

Mr. Pearson predicted that if Washington were to emulate the plan in Germany, where the age of the total national fleet is similar to that of the United States, auto sales might rise to 12 million cars. That is well below the 16 million sold in 2007 or even the 13.4 million sold in 2008, but far better than the current 9.5 million rate.

But making the plan work in the United States could prove trickier than in Europe.

Continental drivers already favor small cars, and the program plays to a segment of the market where European giants like Volkswagen, Fiat, Renault and Peugeot are dominant. In the United States, Japanese automakers may end up with most of the rewards, especially if the program is open to all manufacturers as in Europe.

Currently, proposed legislation in the House would favor American-made cars, while a Senate plan would reward environmentally friendly vehicles, regardless of where they are built. The plans in Congress call for rebates of $2,500 to $5,000, roughly in line with the 2,500 euro ($3,317) plan in Germany, which is costing Berlin about $2 billion.

France and Spain announced their initiatives late last year, with Europe’s biggest economy, Germany, joining in January. Austria is set to begin Wednesday. In most cases, the refund comes in the form of a discount on the sticker price.

Even in Germany, where brands like BMW and Mercedes command the kind of loyalty reserved for sports teams elsewhere, the local subsidiaries of Ford and General Motors have turned out to be big beneficiaries. Sales of G.M.’s Opel Corsa have tripled in Germany, leading workers in Germany and Spain to return to full production schedules.

That does not mean the incentives will be enough to prevent G.M. and Chrysler from sliding into bankruptcy. Detroit remains more dependent than its foreign competitors on higher-priced, bigger offerings like S.U.V.’s and light trucks, which carry far higher profit margins than small cars.

In Germany, more expensive brands have barely benefited from the incentive plan. German car sales jumped 21.5 percent in February, but mass market manufacturers recorded a 37 percent surge, while sales of premium cars fell 19 percent.

Still, when figures for March car sales are announced Wednesday in France and Italy, industry experts predict the subsidies will produce significant gains.

In Italy, which began its program on Feb. 6, drivers can receive a 1,500 euro discount if they trade in a car that is least 10 years old, with incentives ranging up to 5,000 euros if they buy a vehicle powered by electricity, natural gas or hydrogen.

At Fiat, conventional subcompact models like the Fiat Punto are enjoying a strong sales increase. After running on a reduced schedule from October to February, the Fiat plant in Melfi, in southern Italy, is running at full capacity again, churning out the Punto.

In Germany, Fiat sales overall have jumped from 12,000 cars a month to 14,000 a month since February.

In France, 30 percent to 40 percent of new car sales are coming in as a result of the scrapping deal, according to Francois Roudier, a spokesman for the French Auto Manufacturers trade association. Overall sales are still running about 6 percent below last year’s rate, but without the bonus for customers, sales would be off 10 percent to 15 percent.

A similar incentive program operated in France from 1994 to 1996, Mr. Roudier said. While that plan produced a comparable sales bump initially, it was followed by a severe drop in 1997 and 1998. The French government, he said, is now trying to figure out how to prevent a repeat plunge.

“It has a positive impact, but the question is if they’re not renewed, does the market then sag again?” said Garel Rhys, director of the Center for Automotive Industry Research at Cardiff University in Wales.

Along with helping the industry, supporters say the plan will remove hundreds of thousands of pollution-spewing clunkers from the road, while lifting safety standards overall.

The old Skoda that Mr. Hrivnak junked in Slovakia was not in such bad shape. He said that when he took it to the junkyard, both he and his wife, Maria, grew misty-eyed as they handed over the keys.

But Mr. Hrivnak, a 33-year-old editor at Slovak public television, said he felt better driving a new car with airbags, especially when his 3-year-old son was along for the ride.

“When somebody gives you 2,000 euro, it’s very useful,” he said. “I had thought about buying a new car for a year.”