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U.S. ‘Cash-For-Clunkers’ Proposal May Cover Cars From Overseas

By John Hughes

April 17 (Bloomberg) -- U.S. lawmakers may let cars made overseas qualify for a proposed “cash-for-clunkers” program in a bid to secure passage of the measure, designed to help revive domestic auto sales at a 27-year low.

An option under consideration would distribute subsidies to new-car buyers based on manufacturers’ U.S. market share, said Representative Betty Sutton, sponsor of the proposal. The approach may overcome objections that Sutton’s original plan subsidizes North American-made products only.

“There are a lot of ideas out there on the table and certainly we’re exploring them,” Sutton, an Ohio Democrat, said in an interview yesterday. “I’ve always been open to finding mechanisms, avoiding wrinkles, if people have differing views.”

Spurred by the success of a similar program in Germany, backers say they want to speed the measure through Congress soon after it returns from a recess next week. The goal is to stoke sales at automakers including General Motors Corp. and Chrysler LLC, which are surviving on taxpayer aid and face bankruptcy deadlines imposed by the Obama administration.

New autos sold at an annual rate of 9.86 million units in March, the slowest pace since 1982, according to Autodata Corp. of Woodcliff Lake, New Jersey. The rate averaged 16.8 million this decade through 2007.

“What I have been looking for is a solution that would treat all manufacturers fairly,” Representative Edward Markey, the Massachusetts Democrat who crafted the market-share idea, said in an e-mail. “I am hopeful that this could prove to be a constructive way forward that all sides could agree on.”

$5,000 Vouchers

Consumers would receive vouchers worth as much as $5,000 for trading in models from 2001 or earlier for a new vehicle, under the legislation Sutton proposed March 17. The program may spur sales by more than the 21 percent increase witnessed in Germany in February, Sutton has said.

Other cash-for-clunkers proposals have been introduced by lawmakers such as Senator Dianne Feinstein, a California Democrat, and Steve Israel, a New York Democrat who put forth a plan in January.

Lawmakers, automakers, the United Auto Workers union and representatives of President Barack Obama exchanged ideas on the clunker legislation during Congress’s two-week break, Sutton said. Obama’s endorsement of the concept March 30 creates “high likelihood” that lawmakers can quickly resolve disputes over the plan, she said.

Sticking Point

The question of how much in subsidies each manufacturer’s customers should receive has been a sticking point.

A clunkers plan failed in Congress earlier this year after the UAW voiced concern that foreign-made autos would be eligible for subsidies.

Sutton’s original proposal responded to those concerns by making only products assembled in North America eligible. Free- trade proponents said her plan wouldn’t meet World Trade Organization requirements, and automakers that import cars assembled outside the U.S., including Japan’s Toyota Motor Corp., objected to the terms.

One compromise may be to disregard where vehicles are made in granting subsidies, while awarding some sort of “bonus” for U.S. content, Sutton said.

Under the market-share approach also being considered, all manufacturers who sell vehicles in the U.S. would be able to get at least some subsidies, Sutton said.

General Motors had 22 percent of the market share in 2008, so its customers would receive 22 percent of the federal funding set aside for subsidies. Toyota, at a 17 percent U.S. share, would get 17 percent of funds.

UAW Support

GM is “pleased to see that members of Congress are trying to address the sticking points,” said Kerry Christopher, a company spokesman. “Scrappage programs clearly have been highly successful in increasing auto sales in other countries. The U.S. needs to follow suit.”

The UAW supports the new approach, said Alan Reuther, the union’s legislative director. Subsidy amounts “would vary, based on the market share of each manufacturer in some base year,” he said in an e-mail.

Michael Stanton, president of the Association of International Automobile Manufacturers, said his group is studying the market-share option. The Arlington, Virginia-based association represents manufacturers such as Toyota and Honda Motor Co.

“We hope it’s crafted in such a way that all manufacturers can participate,” Stanton said. “We would hope that at the end of the day a consumer could be able to use the incentive to purchase the vehicle that he or she wants.”

Talks on a cash-for-clunkers program will continue after Congress reconvenes next week, said Nadeam Elshami, a spokesman for House Speaker Nancy Pelosi, a California Democrat. “There’s broad bipartisan support in Congress and we’re working with the administration,” he said.

It isn’t clear whether such a bill would be offered as a stand-alone measure or attached to another piece of legislation, Elshami said.

To contact the reporter on this story: John Hughes in Washington at jhughes5@bloomberg.net

Last Updated: April 17, 2009 00:00 EDT