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Reid Pushes 'Clunkers' Vote

The Senate Majority Leader says there are enough votes to approve $2 billion in additional funding for the "cash for clunkers" program

The U.S. Senate on Wednesday moved closer to approving a $2 billion extension for the popular "cash for clunkers" program that gives consumers up to $4,500 for trading in an old vehicle for a more fuel-efficient one. Senate Majority Leader Harry Reid (D-Nev.) said he already had enough votes to pass it and was warning opponents that he would keep them beyond Friday's start of August recess if they didn't clear the way for a floor vote.

Reid said from the Senate floor that he would file motions to close debate on the bill. Under Senate procedure, that could mean votes on both Friday and Saturday, when lawmakers would otherwise be scattering for their coveted summer break. Senate Minority Leader Mitch McConnell (R-Ky.) said he believed the matter would be closed by Friday. The House approved the additional money for the trade-in program last week.

There is opposition to extending the Car Allowance Rebate System (CARS) program, mostly from Senate Republicans, who believe the taxpayer is subsidizing vehicle sales that would occur anyway. Some key Democrats had also voiced reservations, complaining the program did not go far enough to compel the purchase of vehicles considerably more fuel-efficient than the ones being traded in. But in July the top 10 vehicles bought through the program were all small and midsize cars, except for one small SUV, the Ford Escape that comes in a hybrid version.

Swelling with Business

Automakers, dealers, and elected officials from manufacturing states have been pushing for an extension to the program, which is believed to have contributed at least 90,000 vehicle sales to July's industry tally. The Transportation Dept. says the number of sales processed to date is 157,000, as dealerships swelled with business last weekend when reports surfaced that the program might end. There are thousands more transactions in the pipeline that haven't been tallied yet.

The program helped boost the monthly full-year selling rate from 9.6 million in the first half of the year to 11.2 million in July. Ford (F) estimates the program could add half a percentage point to the gross domestic product all by itself.

It is unlikely there will be funding beyond the $3 billion, assuming the Senate passes a bill already passed by the House and sends it to President Barack Obama to sign this week. But some analysts believe the impact of the program will not be as strong in August as it was last month even if the extra money is added. Dealers are already reporting slower traffic. For one, there are still a limited number of vehicles that qualify for purchase and trade-in. And inventory on some of the models that have been popular is getting thin, says Global Insight analyst John Wolkonowicz. Toyota says it has just a six-day supply of hybrid-powered Priuses, for example.

Getting Clunkers off the Road

Global Insight originally projected the program would generate 150,000 to 250,000 sales. General Motors chief sales analyst Michael DiGiovanni said the program, if funded with the full $4 billion that was originally proposed, could add 500,000 sales that carmakers didn't expect.

Still, CARS has helped get a lot of old trucks and SUVs off the road. Vehicles such as Ford's Explorer and Chrysler's Jeep Cherokee, Grand Cherokee, and Dodge Caravan minivan all qualified as "clunkers." They were popular in the '90s and have been common trade-ins. The top cars bought have been the Ford Focus, Toyota (TM) Corolla, Honda (HMC) Civic, and Toyota Prius. So it has helped boost overall fuel economy.

Dealers, to take full advantage of the program, may need to start advertising more aggressively about how the program can help with the purchase of new pickup trucks and even SUVs, as the stock of more fuel-efficient vehicles dwindles. For instance, an old Ford F Series pickup is worth $3,500 if the owner buys a new F Series, which is just 2 mpg more fuel-efficient than those sold a decade ago. The truck and SUV benefits have not received nearly as much publicity as the $4,500 car rebates.

Toyota Motor Sales USA President James Lentz said Wednesday he believed the program still had legs. "No question that it has brought people off the sidelines," said Lentz. Toyota sold 19,000 Prius hybrids last month and expects to sell nearly 145,000 of them this year.

Kiley is a senior correspondent in BusinessWeek's Detroit bureau. Welch is BusinessWeek's Detroit bureau chief.

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