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House Democrats and the Obama administration have agreed on a compromise for a so-called cash-for-clunkers bill.

Similar to European programs, the legislation — also called "fleet modernization" or "scrappage" — would provide federal vouchers of up to $4,500 for people to trade in their vehicles for new ones that get better mileage.

CHART: Summary of cash-for-clunkers agreement

The European programs are expected to result in 400,000 to 500,000 more new vehicle sales this year than otherwise would be the case. Backers say a U.S. version could add 1 million sales at a time Chrysler is in bankruptcy court and General Motors is fighting to stay out. Both are operating on government loans.

Talk of the vouchers has kept some would-be new car and truck buyers on the sidelines, waiting to see whether they'd qualify for government help. So, for the moment, the idea is hurting sales. Based on interviews with lobbyists and congressional offices, how it might work:
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Q: What's the idea behind "cash-for-clunkers"?

A: Supporters say it would replace older vehicles with new ones that use less fuel, are safer and pollute less. And it would give the struggling auto industry a sales boost.

Q: What's the bill's status?

A: It's in a House committee and backed by the president. Senators from both parties are prepared to co-sponsor similar legislation as soon as this week.

Q: Sounds like a sure thing.

A: Not so. Environmental lobbyists, who don't think it boosts fuel economy enough, might derail it or get it changed enough in the Senate that a compromise would take awhile.

Q: Any groups trying to keep it from being derailed?

A: You bet. Car companies, autoworkers, component suppliers and car dealers, among them. The House bill "will help jump-start auto sales and the U.S. economy, while also providing environmental benefits and increasing energy security," says Ziad Ojakli, Ford Motor spokesman.

Q: What's the price tag?

A: About $4 billion. The money is currently proposed to come from Energy Department funding included in the already enacted $787 billion economic stimulus package.

Q: If the House bill becomes law, how would it work?

A: The government would send up to $4,500 to the selling dealer on your behalf, if you:

1. Trade in a car that — this is a key point — has been registered and in use for at least a year, and has a federal combined city/highway fuel-economy rating of 18 or fewer miles per gallon.

2. Buy a new car, priced at $45,000 or less and rated at least 4 mpg better than the old one (gets a $3,500 voucher). If the new one gets at least 10 mpg better, you get the full $4,500.

Example: Trade that well-worn 1985 Chevrolet Impala V-8 police special, rated 14 mpg, for a 2009 Impala V-8 rated 19 mpg and the government will kick in $3,500. Downsize to Chevy Cobalt (27 mpg) or even a larger Honda Accord (24 mpg) and get $4,500.

Mileage ratings back to 1985 are at www.fueleconomy.gov.

Q: What about trucks?

A: It's more complicated.

For standard-duty models — most SUVs, vans and pickups:

1. The old one must be rated 18 mpg or less.

2. The new one must be at least 2 mpg better for $3,500 or at least 5 mpg better for $4,500.

For heavy-duties (6,000 to 8,500 pounds gross vehicle weight rating):

1. The old one must be rated 15 mpg or less.

2. The new one must be rated at least 1 mpg better for $3,500, or 2 mpg or more for $4,500.

Work trucks (8,500 to 10,000 lbs.) don't have mpg ratings, so age is the criteria. The old one has to be a 2001 model or older. And only $3,500 is available.

Q: Is it worth it for $4,500?

A: The assumption is that the people most likely to use the program would trade in cars worth less than $4,500. Thus, while not necessarily clunkers, most would be at least 8 years old.

Q: Can I combine these incentives with other offers?

A: Yes. For instance, you could trade for a hybrid and get the voucher, claim the hybrid tax credit and get dealer or manufacturer discounts. You also could deduct the sales tax, if any, on your next federal tax return.

Q: Would I ever see the $3,500 or $4,500?

A: No. It's an electronic transfer from the government to the dealer. Dealers want to be sure the amount can be counted as cash from the buyer, which would help buyers get credit because they're financing less.

Q: What does the dealer do with my trade-in?

A: Gives it to a salvage operator. The engine, transmission and some other parts must be destroyed so they can't be reused. The idea is to cull fuel-thirsty, polluting drivetrains. Operators can resell other parts, however.

Q: What's to keep me from buying a junkyard car for a few hundred bucks, getting it barely running and trading it?

A: The one-year-in-service requirement noted earlier. Lawmakers wanted to exclude the revival of so-called junkyard dogs, because they've already been taken off the road.

Q: What do I get if I recently bought a car that would have qualified?

A: The bill contemplates making the incentives retroactive to March 30, but it's unclear how to find and junk cars that were traded in that long ago. Some might already be back on the road, driven by new owners.

Q: What's wrong with environmentalists' idea that the new car or truck should get much better fuel economy than the House bill currently requires?

A: Opponents say the environmentalists' fuel-economy improvement thresholds are so high that foreign brands benefit disproportionately, because their lineups tend now to have more small, fuel-efficient vehicles.

But the American Council for an Energy-Efficient Economy complained in a statement criticizing the House bill that the proposal as it stands now is way too lenient.

The council charged that the bill "aims primarily to clear Detroit's unsold inventory from the storage lots," rather than to seriously cut fuel use.

Q: How soon could this become law?

A: Depends on how much critics can sway the Senate, and to what piece of legislation this "fleet modernization" bill is attached.

If it becomes part of a larger bill that's likely to get lots of debate, it could take awhile. If it's attached to urgent, must-pass legislation, such as an appropriation bill, it could move quickly to the president's desk.

A current plan is to add the program as an amendment to climate change legislation now being considered.

As proposed, it would be in effect for just one year.

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Cutlass said:

18 MPG is a pointless pick of a number. There's almost nothing other than SUVs on the road that get mileage that bad. I got that with the 1975 Buick with a 350 engine I had back in the early 80s. There aren't more than a handful of models built in the 80s that got mileage that bad. There's a handful of full size sedans, and a handful of sports cars that got that. A very small part of the market.

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Cutlass said:

Yeah, the whole program looks like a waste of time. What I would have done is get all the states to between $200-$500 per year to the cost of registering any car over 15 years old. That would result in a lot of old cars being junked, increase the value of newer used cars, which would encourage more trade ins of semi recent used cars by people who can afford to trade up, but just need a bit more encouragement.

As cars get further in the past, not only does average fuel efficiency decline, but average pollution increases. So it's of value to take cars off the road not just by size, but by age.

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mrt144 said:

Your plan wouldn't cost any money to the government but be viewed as hurting the poor. Which is why I like it.

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May 2009 Manufacturing ISM Report On Business®
PMI at 42.8%

DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report's information reflects the entire United States, while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of May 2009.
New Orders Growing
Production, Employment and Inventories Contracting
Prices Falling
Supplier Deliveries Faster

(Tempe, Arizona) — Economic activity in the manufacturing sector failed to grow in May for the 16th consecutive month, while the overall economy grew for the first time following seven months of decline, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "While employment and inventories continue to decline at a rapid rate and the sector continued to contract during the month, there are signs of improvement. May is the first month of growth in the New Orders Index since November 2007, with nine of 18 industries reporting growth. New orders are considered a leading indicator, and the index has risen rapidly after bottoming at 23.1 percent in December 2008. Also, the Customers' Inventories Index remained below 50 percent for the second consecutive month, offering encouragement that supply chains are starting to free themselves of excess inventories as nine industries report their customers' inventories as 'too low'. The prices that manufacturers pay for raw materials and services continued to decline, but at a slower rate than in April."

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Integral said:

I found this interesting -



Now, ISM has been consistently more optimistic than the general economic consensus over the past eighteen months, so take it with a handful of salt. This report could also be somewhat inflated due to their new seasonal adjustment process - I haven't looked too closely at their seasonal adjustment methodology, which just went on line this year.

Employment situation Friday! Who wants to play over/under with, oh, U3 9.3%?

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Australia has dodged a recession, with data out today showing the economy expanded in the first three months of the year.

Gross domestic product for the March quarter grew a seasonally adjusted 0.4 per cent from the previous three months, the Australian Bureau of Statistics said, bouncing back from a revised 0.6 per cent decline in the final three months of last year.

Analysts had expected the Australian economy to have risen 0.2 per cent in the first quarter, with many revising their predictions to growth from a contraction after yesterday's surprisingly good trade figures for the period.

The relief, though, may be temporary as the main contribution to growth was from shrinking imports (adding 1.6 percentage points), not typically a sign of a robust economy. The main drag was business investment (shaving 1.1 points), a signal that the outlook for jobs is likely to darken further.

''We've dodged the recession bullet for the time being, but in reality we've had five quarters of sub-trend growth and unemployment has gone up in that period,'' Commonwealth Bank chief economist Michael Blythe.

''So while we might not be officially able to tick off recession, to all intents and purposes, we are there.''

The GDP figures come a day after the Reserve Bank left interest rates on hold at 3 per cent, with Governor Glenn Stevens warning the economy was ''contracting'' and that the central bank would slash rates further ''if needed.''

The national accounts figures were ''stronger than the RBA was expecting, and it's reinforcing that 'on-hold for the time being' message,'' CommBank's Blythe said.

Investors, though, liked the news that Australia was not joining the list of countries in recession - for now at least. The Australian dollar jumped a quarter of a US cent to 82.2 US cents. Australian stocks also gained on the news, extending their advance for the day to 0.8 per cent.

Trade numbers for the March quarter yesterday threw many economists' models out of whack.

A 2.7 percent jump in exports alone added 0.6 percentage points to quarterly growth. Combined with a 7 per cent fall in imports, Australia's current account deficit narrowed to $4.6 billion from $6.5 billion in the fourth quarter of 2008.

Excluding the farm sector, the economy grew by 0.5 per cent in the first quarter. On a year-to-year basis, the overall growth rate was 0.4 per cent. The December quarter year-on-year growth rate was revised up, to 0.8 percent, from 0.3 per cent.

The economy is yet to gain the full benefit of Federal government spending, totaling about $52 billion before last month's budget. Rate cuts from the central bank - which have more than halved the official rate since September - are also yet to flow through fully. Mortgage holders have saved about $1000 a month as banks passed on most of the rate cuts.

Indeed, household final spending added 0.3 percentage points to the quarterly growth tally, as families spent some of the government largesse.

Against those positives, though, are several major drags on demand, particularly from businesses that have postponed or cancelled projects.

''I don't think we're out of the woods yet," said ICAP economist Adam Carr. ''I still think the unemployment rate is going to rise but the data suggest the unemployment rate will be more modest."

Still, the numbers suggest ''the economy is markedly healthier'' than originally expected, he said. ''Going forward there is every reason to believe the GDP outcomes are going to be stronger.''

Other definitions of a recession exist, though. The National Bureau of Economic Research in the US defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators."

Australia's economy continues to outpace most of its rivals. The US economy shrank by 2.5 per cent in the year to March, while the Eurozone contracted 4.6 per cent year-on-year. Japan was one of the worst performers, with GDP withering by 9.7 per cent over the same period.

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potatokiosk said:

Of all possible ways to cut back on gasoline consumption and pollution, you pick one that hits the poor hard and call it the best?

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mrt144 said:

Cash for Clunkers

http://www.usatoday.com/money/autos/2009-05-11-chrysler-gm-cash-clunkers_N.htm



There are so many things wrong with this idea and it only kicks the can of terrible auto sales down the road a mile or so.

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downtown said:

I am about to buy a new car that gets 33 MPG. Should I wait on this?

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mrt144 said:

How badly do you need the new car and how are you paying for it? What is your current MPG? If it's anything less than 29 mpg you'd get some benefit based on the minimum qualifying amount.

Personally I'd wait until you're literally being stalked by dealership employees who will sell below cost cause GM or Chrysler closed out on them.

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