June 18 (Bloomberg) -- Congress approved “cash-for- clunkers” legislation today, clearing the way for consumers to get trade-in vouchers worth as much as $4,500 to buy new vehicles.

The provision, attached to legislation to fund the wars in Iraq and Afghanistan, awards $1 billion in vouchers to Americans who swap older cars and light trucks for new, more fuel- efficient models. The aim is to spur auto sales that fell 34 percent in May.

“This legislation will stimulate the economy and encourage consumers to buy more fuel-efficient vehicles,” Senator Carl Levin, a Michigan Democrat, said on the Senate floor today. It “will provide a much-needed boost to the automobile industry.”

The Senate voted today for the measure, sending it to President Barack Obama for his signature. The House gave its approval June 16. Consumers could start getting rebates in August, after a 30-day period for the administration to set rules, Senator Debbie Stabenow, a Michigan Democrat, told reporters.

Approval came after the Senate rejected an attempt by Senator Judd Gregg, a New Hampshire Republican, to strip the provision from the war-funding bill. Gregg said the vouchers would increase the U.S. debt, and “passes on to our children a $1 billion price.”

Automakers led by Ford Motor Co. and General Motors Corp. pressed for the legislation all year to revive sales at their lowest since the early 1980s. Similar programs have raised sales 25 percent to 40 percent in Germany, 15 percent in China and 8 percent in France, Levin said.

Better Gas Mileage

Ford “appreciates congressional efforts,” the company said in a statement today. The legislation “helps consumers, supports jobs and improves the environment.”

Consumers will get $4,500 vouchers if the new car they are buying gets 10 miles-a-gallon better gas mileage than the model they are trading in. For light trucks, the improvement must be 5 mpg better than the older model, and for large light trucks, 2 mpg.

For a $3,500 voucher, the improvement for cars must be 4 mpg or better, for light trucks, 2 mpg, and for large light trucks, 1 mpg. The trade-in vehicle must be no older than a 1984 model and get 18 mpg or less in combined city/highway fuel economy.

New passenger cars purchased with the vouchers must get at least 22 mpg in city/highway fuel economy, light trucks must get at least 18 mpg, and large light trucks 15 mpg. Domestic as well as foreign models sold in the U.S. qualify.

‘The Fine Print’

Consumers may not be as interested in the program as they expect once they read “the fine print,” said Jeremy Anwyl, chief executive officer of research firm Edmunds.com in Santa Monica, California.

If the value of their used car is greater than the $3,500 or $4,500 voucher, it wouldn’t make financial sense for consumers to do a trade-in for the discount, Anwyl said.

Stabenow, the Senate sponsor of the legislation, told reporters that consumers’ used vehicles will need to be worth less than $4,500 to get full advantage of the program. “There will be more than enough people who will qualify” to make the program a success, she said.

New autos in the U.S. sold at an annual rate of 9.9 million units in May, the fifth straight month sales failed to reach 10 million, according to Autodata Corp., an industry research firm based in Woodcliff Lake, New Jersey. The rate was 14.2 million in May 2008 and averaged 16.8 million this decade through 2007.

The “clunkers” program may add to quarterly sales at an annualized rate of 1 million to 1.5 million vehicles, Brian Johnson, a Barclays Capital analyst, said in a June 12 report.

The $1 billion should be enough to subsidize about 250,000 vehicle sales, lawmakers have said. Congress will need to approve additional funding in the year that begins Oct. 1 to meet the sponsors’ goal of subsidizing 1 million auto sales with $4 billion in vouchers.

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

Last Updated: June 18, 2009 18:20 EDT