Washington's $1-billion "cash for clunkers" program is getting credit for giving automakers, including Ford Motor Co., a huge sales boost in July. Now the question is how long it will last.
Thousands of consumers eager to trade in rusty beaters for brand-new cars crowded dealership lots over the last week, delivering automakers their best month in more than a year and injecting hope into the troubled industry.
Ford saw its first year-over-year increase in U.S. sales since November 2007, netting a 1.6% sales gain compared with July 2008, while Hyundai Motor Co., Volkswagen, Kia and Subaru all saw sales increases. General Motors Co., Toyota Motor Corp. and Chrysler, among others, had sharply diminished sales slides.
Overall, the U.S. light vehicle market dropped just 12.2% in July, according to Autodata Corp. That's the industry's smallest slide since May 2008.
Yet the program's immediate future remains in doubt as the Senate considers joining the House in authorizing an additional $2 billion after overwhelming demand ate up funding for the $3,500 and $4,500 vouchers. The White House guaranteed the program through Friday only, while several leading Republicans questioned the validity of the incentive, hinting at a tough Senate fight this week.
Even if additional funding is approved, some industry analysts question whether the incentive can continue to boost sales the way it did in July or, indeed, whether the vouchers themselves were truly responsible for the sales jump.
"I think there's more going on than the clunker program," said Jeremy Anwyl, chief executive of auto research firm Edmunds.com, who contended that the industry was already on an upswing and that many who bought vehicles last month had planned to even without the program.
He estimates that only about 50,000 more new cars were bought last month than would have sold without the vouchers, just 5% of total sales. "It'd be nice to know what taxpayers are getting for their money here," Anwyl said.
Automakers and dealers say that axing the clunkers program could kill momentum they gained last month and delay an economic recovery.
Michael DiGiovanni, head of market analysis at GM, calculates that roughly 5.5 million vehicles still on the street qualify as trade-ins under program rules.
Moreover, he contends, the mere existence of such an incentive draws consumers who don't qualify but end up buying anyway. Of the roughly 115,000 incremental industry sales that GM calculates arose from the program, nearly 30,000 did not involve vouchers. "Clearly this has been a huge boost for the industry," said DiGiovanni, citing similar programs in Brazil, France and Germany that have netted impressive results.
Such feelings were echoed by some in Washington, including Sen. Dianne Feinstein (D-Calif.). She dropped opposition to more funding Monday after a briefing from administration officials revealed that consumers were opting for higher-mileage cars and trucks -- an average increase of 9.6 miles per gallon over the vehicles being turned in.
"The statistics are much better than anybody dreamed they might be," Feinstein said. "Our view is, why should we stand in the way of it when its fuel efficiency is much better than we anticipated?"
Still, there is resistance among Republicans to expanding a program that many opposed in the first place.
Sen. Jim DeMint (R-S.C.) said he wanted more data about how the initial $1 billion was spent. He also said he had heard complaints from dealers that the program was poorly run. "This is just mass chaos, so to extend it two more billion without stopping and seeing what we've done would be crazy," he said.
Democratic leaders worked Monday to reach an agreement with Republicans to allow a vote this week. Supporters said they believed they had the votes to overcome procedural hurdles from opponents such as Sen. John McCain (R-Ariz).
White House Press Secretary Robert Gibbs said the program would last to the end of the week. But without Senate action, he said, he could not make the same guarantee he made last week to assure auto shoppers that the vouchers still would be available. Hoping to cash in on the program, automakers rolled out heavy promotional pushes last month. Chrysler offered to double the trade-in credit for eligible vehicles, while Ford set up a website that helped consumers determine their eligibility.
Even before rules for the program were published July 24, Hyundai began honoring such trades, a tactic that helped reap the South Korean automaker 45,553 sales, its highest total in 13 months.
Toyota, on the way to a July in which sales fell only 11%, far better than the 38% decline it registered for the first six months of the year, saw a huge jump in sales of its fuel-efficient Prius hybrid. Honda, down 17% for the month, reported that Civic sales increased 3% compared with a year ago.
"Sales for virtually every Toyota model were up in July," said Bob Carter, general manager of the automaker's U.S. sales division.
But less than a week after the program went into full swing, warnings emerged that it was so successful that funds could soon be exhausted. That provoked panic in the industry, which has suffered its worst sales decline in decades.
Emily Kolinski Morris, lead economist at Ford, said the vouchers would save participants an average of 300 gallons of gas a year. "It seems to be living up to its promise as a win-win-win for consumers, the environment and the economy," she said.
Yet even some in the industry said the effect of clunker vouchers could fade. GM's head of sales, Mark LaNeve, thinks it could take four months to spend an additional $2 billion on vouchers. "The number of people who have vehicles that qualify and the financial wherewithal is limited," he said.
Lena Pons, policy analyst at consumer group Public Citizen, opposes more funding, arguing that the program deserves more study to ensure that it's "not just another multibillion-dollar handout."