The Obama administration will soon have another $2 billion to spend on consumer rebates for car purchases, but automakers are saying little about production increases and experts see only a short-term boost to the economy overall.
The Senate was expected on Thursday to approve an extension of the popular cash for clunkers sales incentive despite opposition from some lawmakers skeptical of the initiative's value to the economy.
We're just moving up sales that are going to be there anyway, said Republican Tom Coburn. As soon as this runs out of money, sales will go back down.
But major automakers said in a letter to senators the current $1 billion program has provided an economic boost to their companies, suppliers, scrap yards, steel producers and other small businesses.
There is no question that 'cash for clunkers' has succeeded, said Dave McCurdy, chief executive of the Alliance of Automobile Manufacturers, the chief trade group for General Motors Co
The incentive offers consumers a federally backed rebate of up to $4,500 to trade in old cars for new ones that are more fuel efficient.
Citing government data, dealers said on Thursday more than $920 million in clunker rebates have fueled nearly 220,000 vehicle sales since July 1.
Domestic and overseas manufacturers have so far split the clunker market. More fuel efficient passenger cars have outsold sport utilities, pickups and vans.
The administration had warned the clunker measure would be suspended if Congress did not approve more money by week's end.
The House of Representatives passed the $2 billion extension July 31.
Passage of the legislation in the Senate assures there will be no suspension, said Bailey Wood, director of legislative affairs for the National Automobile Dealers Association.
But future demand is an open question, although Wood said current showroom traffic remains strong with non clunker sales up as well.
Barclays Capital analyst Brian Johnson expects the clunker-related lift in the industry's annual sales rate and production in the second-half of the year to continue.
Detroit and overseas automakers that make at least some of their vehicles in the United States have been quiet on production increases.
Ford Chief Financial Officer Lewis Booth said the company would study its inventories and potential production changes this week. Booth said nothing would be announced until September.
GM is also trying match inventory with demand.
We'll have to take a hard look at adjusting our production if cash-for-clunkers gets another infusion, said GM spokesman Greg Martin.
Toyota is already stepping up some production in North America, but ramping it up for the popular Prius hybrid, one of the top-sellers under the clunker program, would be difficult to do quickly, the company said.
Economists see the clunker program boosting third-quarter growth, and several firms including Goldman Sachs have recently raised their GDP forecasts.
Goldman now sees third-quarter growth at a 3 percent annualized rate, up from its earlier forecast for just 1 percent, in part because the clunkers program has helped revive auto manufacturing.
Still, the lift is likely to be short-lived. The incentives may have pulled forward auto demand from later quarters, leaving the economy vulnerable to a setback.
(Reporting by John Crawley, Donna Smith and Emily Kaiser in Washington; David Bailey and Soyoung Kim in Detroit; editing by Andre Grenon)