AKRON (May 25, 2009)—A plan to pay cold, hard cash for clunkers? Why not?
The proposal by the Barack Obama Administration and House Democrats—still in the early stages of the legislative process—would give motorists as much as $4,500 in government money to trade in their older, gas-hog vehicle for a new, much-more fuel efficient car.
For rubber industry companies that serve the Detroit auto makers, it's a great idea, though not a panacea for the huge problems they now face. But the reported price tag for the “cash for clunkers” program—perhaps $3 billion to as high as $8 billion in taxpayers' money—is a bargain, considering the amount of federal dollars being used to bail out banks, financial companies, General Motors Corp. and Chrys¬ler L.L.C.
The driver in this idea is to stimulate new vehicle sales. New car and truck sales are…well, they just aren't. U.S. auto sales this year are expected to go no higher than 10.5 million, and perhaps as low as 9.5 million units. Through April, sales were 34.4 percent lower than a year earlier.
If another 1 million to 2 million cars are sold because of this program, it would represent a shot in the arm for auto companies and, by extension, their rubber industry suppliers.
Not everyone is hot on the cash-for-clunkers idea. The Motor Vehicle Manufacturers Association (MEMA)—which includes rubber companies as members—doesn't like the idea because there is no provision that encourages repairs on older vehicles.
MEMA estimates there is $55 billion worth of repairs on vehicles on the road that are being ignored by consumers reluctant to spend money in this harsh economy. Stimulate that, MEMA declares, in a bill designed to help the auto industry and its suppliers.
All well and good. But for the rubber industry—except for the tire sector—it's new-car sales that nets the most business.
Much of the aftermarket rubber components are imports. Helping that sector isn't a bad idea, but it isn't a reason to hold up a program to encourage new car sales.
The “greenness” of this cash-for-clunkers proposal also stimulates support for the program. An older car pollutes more than a new one, and a fuel-efficient car uses less gas.
This isn't a new idea. Several states have versions of such a program, as well as a few countries. As a teaser, Germany's new car sales rose 20 percent thanks to a similar trade-in-your-clunker incentive.
Much would have to be hashed out before such a proposal took effect in this country. Should people be restricted to spending the money on a new car? Should a buy-American clause be required? Can the government afford this program?
However it turns out, something would be better than nothing.
This editorial appeared in Rubber & Plastics News, an Akron-based sister publication of Tire Business.