Clunker mania

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The cash for clunkers program is off to a roaring start, as Americans seem ready to purchase new cars when presented with a great deal. This is a very encouraging sign for the economy, as a boost in auto sales would go a long way towards getting us out of this recession.

The program is so popular that it’s running out of money after just one week. The House has passed a bill to add $2 billion to the original $1 billion program. The Senate will take it up next week. Senator Diane Feinstein won’t support the bill without tougher fuel standards, and John McCain might filibuster the bill in the Senate. It’s not a done deal yet.

  

Ford shocks the market by posting a profit

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The automotive landscape has been changing so rapidly it’s sometimes hard to keep up. GM and Chrysler had to be saved by the federal government, while Ford was able to avoid that fate. Their troubles have probably helped Ford, but Ford has also been on a tear with impressive new models like the Ford Fusion, and many more new models are in the pipeline.

Auto analysts expected Ford to show some improvement, but the announced numbers were a pleasant surprise for many.

Ford Motor Co. posted a surprise profit of $2.3 billion for the second quarter — a sharp contrast to the whopping $8.7 billion loss it reported for the same period a year ago — but the profit was largely due to one-time gains related to its debt reduction moves.

Even with those special items removed, the Dearborn automaker surprised Wall Street with a pre-tax operating loss of $424 million for the second quarter of 2009, excluding special items — a $609 million improvement compared with the second quarter of 2008.

After taxes and excluding special items, Ford posted an operating loss of $638 million in the second quarter, or 21 cents per share, compared with a loss of $1.4 billion, 63 cents per share a year ago. That also was a marked improvement over the $1.4 billion loss — $1.8 billion after taxes and excluding special items — that Ford reported for the first three months of the year, when it lost 75 cents per share.

Wall Street had been anticipating a loss of 52 cents per share, after taxes and excluding special items, according to a survey of a dozen analysts by Thomson Reuters prior to today’s announcement.

“While the business environment remained extremely challenging around the world, we made significant progress on our transformation plan,” said CEO Alan Mulally. “Our underlying business is growing progressively stronger as we introduce great new products that customers want and value, while continuing to aggressively restructure our business and strengthen our balance sheet.”

It looks like Alan Mulally’s turnaround efforts are on track.

  

Chrysler will double “cash for clunkers” deal

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The incentives keep flying as the automakers try to move metal in this tough market.

Chrysler Group LLC, looking to clear out sales of 2009 models, will double the federal government’s cash-for-clunkers program that will launch Thursday.

Chrysler will offer up to $4,500 cash or 0% financing for 72 months through GMAC Financial Services on most 2009 model vehicles. These incentives are valid through Aug. 31, 2009.

The incentive program, designed to improve the fuel economy of the nation’s fleet, provides a voucher of either $3,500 or $4,500 for trading in a vehicle that averages less than 18 miles per gallon in combined city and highway driving and is not more than 25 years old. The amount of the credit is determined based on the incremental fuel-economy improvement between the old and new vehicles.

The Chrysler incentives will apply to any buyer regardless of the age and fuel economy of the trade-in vehicle, said Steven Beahm, Chrysler vice president of sales operations.

Ford announced that they will not match the incentives, which isn’t surprising given’s Ford’s recent success in the marketplace.

  

Mixed reviews on the government’s cash for clunkers program

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Many are hopeful that the federal government’s new cash for clunkers program will provide a much-needed boost to the American auto industry at a time when the recession is crushing auto sales. BusinessWeek, however, calls the new program a “lemon.”

The problem with the law is that it is both underfunded and too narrow to generate a spike in showroom traffic. Standard & Poor’s (MHP) says the most it will do is boost sales by 3% for the year; a similar German program pushed sales up 30% a month this year. “This is a waste of taxpayers’ money,” says analyst John Wolkonowicz of Boston research firm IHS Global Insight (IHS). “There won’t be enough people who can take advantage of it.”

First off, the feds have approved only $1 billion for the program. That could help fund the purchase of just 250,000 cars—not much more than a week’s worth at current sales levels—between August, when the program likely will start, and Nov. 1, when it ends.

Plus, the law makes little sense for most passenger-car owners. The government will cut checks of $3,500 to $4,500 to dealers so they can buy old cars that get 18 miles per gallon or less and then sell the owner a more fuel-efficient replacement. But most cars on the road get more than 18 mpg, so they won’t qualify. And many that are thirsty enough to warrant the deal are luxury models worth a lot more than $3,500 to $4,500. If a consumer can sell the old car for more than what the government will pay, there’s no reason to take advantage of the bill, says Wolkonowicz.

Yes, there are plenty of old cars that do qualify. But many are 10 years old or more, says Edmunds.com CEO Jeremy Anwyl. People driving cars that ancient often buy used, and even with a $4,500 discount, they probably won’t want to take on new-car payments during a time of economic hardship.

This is a pretty downbeat view. The article points out that the program should be bigger, but if it’s successful you can be sure that Congress and the Obama administration will push to expand it.

Reuters takes a much more positive view, pointing out that the law is spurring certain buyers to trade in old vehicles.

Having driven the equivalent of six smoke-belching laps of the planet, Tony Metzler figured his ageing Chevrolet Blazer SUV would not make a good trade for a new car. Until now that is.

With a $1 billion (621 million pounds) federal “Cash for Clunkers” program that pays consumers $3,500 or $4,500 in credit to swap ageing gas-guzzlers for new, more fuel efficient models, he made the plunge.

“It ended up being right place, right time for me,” said Metzler, 42, who traded his eight-year-old sport utility vehicle for a new Chevrolet Equinox this week. “It seemed like a good opportunity.”

The program signed into law by President Barack Obama in June offers a trade-in credit of up to $4,500 to owners of cars built since 1984, with fuel economy of 18 miles per gallon or less.

It also applies to SUV, vans and pickup trucks. Participating dealers assess the discount, apply it to the new vehicle, and then obtain reimbursement from the government. Details of eligibility are available at www.cars.gov.

Metzler, a Phoenix-valley insurance executive, had racked up 150,000 miles (240,000 kilometres) in his old SUV that averaged 17 miles per gallon. He got a $3,500-credit towards his new car, which gets a slender 3 mpg improvement.

The program, which backers hope will arrest the auto industry’s slide and sell 250,000 new vehicles this year, runs through November 1 or until funds are exhausted. It has been broadly welcomed by auto dealers across the country.

For more information on the program, check out Cash for Clunkers Facts.

  

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