Incentive program to help sell new cars looks like a winner
Some in America show disdain for ideas or practices from Europe. But one European idea that's proven helpful in this economic crisis, particularly in Germany, deserves consideration and adoption in the United States.
The idea is known as "cash for clunkers" and, when it works, it creates a win-win situation, benefiting car companies and their dealers as well as car buyers and the environment.
The program in Germany, which involves government incentives to buy a new car and trade in an old one, is credited with boosting car sales 21 percent in February. General Motors' Opel division in Europe saw its best quarterly sales numbers in 10 years because of the program.
The idea already is attracting attention in the United States. And in Congress, there are several versions of the idea being developed. Most offer an incentive or voucher ranging from $3,000 to $5,000 for anyone buying a new car while trading in a vehicle that's nine years old or older.
The environmental angle to the program is designed to replace older, less fuel-efficient vehicles with higher-mileage cars that also produce less pollution. One version of the program in Congress would boost the federal cash incentive for cars built in the U.S. that also get 27 mpg or more on the highway.
Further tweaking of the program could offer greater incentives not only for fuel-efficient cars, but also cars produced in the United States. But too much fine-tuning could tilt the program to the point that it is viewed as protectionist by America's global trading partners, and that would work against President Barack Obama's requests for global cooperation not protectionism in fighting the economic crisis.
By some estimates, the average age of cars and trucks on America's roads is nine years. That means that millions of cars would be candidates for a cash-for-clunkers program.
One potential drawback of the program could be that the incentive program might produce a sales spike now, but lead to a collapse of auto sales two years down the road. But a more positive view of the sales picture argues that there will be significant pent-up demand for auto sales after the economy stabilizes, and a cash-for-clunkers program now would pull some of those sales into the next few months and might help level out sales, taking some of the strain off the manufacturers in terms of meeting future demand.
But the most basic appeal of a cash-for-clunkers program is that it would help move cars off dealers' lots and allow manufacturers to clear existing inventory, while also bringing in sales revenue, to help fund operations through the economic crisis.
And when seen as another form of a government investment in, or bailout for, the U.S. auto industry, "cash for clunkers" looks like an effective use of taxpayer dollars.
BusinessWeek magazine argues that even a wildly popular cash-for-clunkers program, in which several million people traded in their old cars for new ones, the cost would be less than the tens of billions of dollars given to GM and Chrysler in the form of bailout money.
The magazine envisioned a maximum 4 million car owners participating at a cost of about $13 billion, and compared that figure with the nearly $18 billion that the U.S. government already has spent to prop up General Motors and Chrysler, with billions more expected to be spent on the ailing companies.
And though Ford has not taken federal bailout funds, it too would benefit from a government-subsidized trade-in program.
A U.S. version of a cash-for-clunkers program would not solve all of what ails Detroit's automakers. But it does look like a win-win proposition that is a creative way to help not only car companies and their dealers, but also drivers of older cars and the environment.
Congress should follow the lead of Germany and several other European countries by passing a cash-for-clunkers program and quickly.