The U.S. Cash for Clunkers plan to jump start car sales by offering up to $4,500 for older cars swapped out for new ones is so successful that the White House and Congress were scrambling on Friday to find $2 billion more for the program.
Ford Motor Co shares rose nearly 8 percent in early trading as the rapid success of the $1 billion program lifted prospects for an industry beset by abysmal sales, bankruptcies and uncertainty.
The downward spiral has been broken. We saw a stabilization in sales in the second quarter, and there will be a recovery in automotive sales, Mike Jackson, chief executive of the leading U.S. dealership group, AutoNation, said in an interview. There's no question about it.
Automakers are due to report U.S. sales next week.
The Cash for Clunkers program was modeled after similar government incentives in Europe. , and offers consumers up to $4,500 to trade in older and less fuel-efficient vehicles to be scrapped.
A preliminary analysis by the Transportation Department shows that dealers sold 250,000 vehicles with the government benefit since July 1. Officials said brisk sales exhausted the $1 billion allotted by Congress earlier in the year.
CAN PLAN DRIVE ECONOMY?
The effect that the plan will have on the economy is unclear. Analysts have said they expect it to give the economy a bit of a lift in the current quarter.
Obama administration officials considered suspending the program on Friday but opted to keep it going through the weekend while options are considered.
Leaders in the U.S. House of Representatives and Senate worked quickly with White House support to craft legislation that could be approved before Congress left for its month-long summer vacation. The House was due to recess later on Friday, the Senate on August 7.
We feel confident that we'll have a solution that people can agree on moving forward and that the program continues, White House spokesman Robert Gibbs said.
A bill offered by House Appropriations Chairman David Obey would extend $2 billion through September 30, 2010. The funds would come from an unused Energy Department loan guarantee initiative that was part of the government's economic stimulus package enacted in February.
The amount of the proposal could change as it moved closer to a vote.
House Republicans said they would not block the measure in the Democratic-led Congress.
In addition to stimulating sales, the Cash for Clunkers program was aimed at boosting sales of General Motors Corp and Chrysler Group, both of which restructured under bankruptcy protection this year.
Fuel efficiency terms of the program were narrow enough to help domestic manufacturers qualify. But Senators Dianne Feinstein and Susan Collins have said any extension must include stricter efficiency and environmental requirements.
They were asking the Transportation Department on Friday for details on sales data such as makes and models sold with program rebates.
Very early indications showed that cars were selling better than pickups or sport utilities. But it was unclear how the program had affected Toyota Motor Corp (7203.T) and Honda Motor Co (7267.T), which make the most fuel efficient passenger cars.
Analysts expected the program, if utilized fully, to push U.S. sales above 10 million units for 2009, higher than the annual rate so far this year.
(Reporting by John Crawley; Additional reporting by Rick Cowan and Steve Holland in Washington and David Bailey and Soyoung Kim in Detroit; Editing by Toni Reinhold)