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Cash in old cars for new ones Economy, consumers, automakers would all benefit
-- USA Today 03/31/09 -- By Bill Ford
In spite of the many challenges our country faces, I strongly believe the government stimulus and other steps to thaw credit markets will be effective in driving economic growth over time.
But we still face an immediate and serious challenge. Last week, President Obama observed that U.S. auto sales have seen a huge drop-off, starkly noting "every automaker is getting killed right now." In just one year, U.S. auto sales have fallen by nearly 50%. And March's sales numbers promise to be sobering for foreign and domestic automakers.
This unprecedented trend is sustainable for neither the industry nor the economy. We urgently need to draw reluctant consumers back into the marketplace. The good news is that there is a proven initiative, outlined by the president on Monday, that can help consumers overcome their fear. The plan also would help the environment and increase energy security. It has been called a "fleet modernization" or a "scrappage" program. Whatever the name it works.
In January, the German government enacted a consumer incentive equivalent to $3,200 to scrap automobiles that are at least 9 years old and buy new, more environmentally advanced vehicles. By February, sales of new vehicles jumped 21% over the same month a year before. Countries such as Japan, France, Italy, South Korea and others are considering or already have similar programs.
This model can work in the U.S., too. President Obama said that he would like to use parts of the economic stimulus package to fund a program that would give consumers a "generous credit" when they replace an older car with a new, more fuel-efficient car.
President Obama has rightly emphasized the importance of vehicle fuel-efficiency gains and expressed concern about shrinking U.S. auto sales and the risk it poses to the economy. This program could help the environment and jobs.
How the program would work Here's how one bipartisan proposal before Congress would work to stimulate new vehicle purchases. The program would provide vouchers to consumers for vehicles at least 9 years old. The vouchers likely would be worth more than the current value of their vehicle. For example, a consumer who turns in an older car could get a voucher ranging from $4,000 to $5,000 to use as a down payment on a $20,000 car that exceeds 27 miles per gallon. Combined with current auto sales incentives, consumers likely will get unprecedented deals on more fuel-efficient cars.
An independent analyst, Barclays Capital, estimates that this proposal could boost sales by 2.5 million units if 2% of eligible vehicles were traded in. This surge in sales would help preserve American jobs in communities across the country.
Taxpayers are rightly concerned about the federal deficit given the significant spending on the economic stimulus. Let me clarify, Ford is in a different position and is not seeking emergency taxpayer assistance. Nonetheless, Congress needs to spur consumer demand for autos the largest purchase a family makes after a home.
This vehicle modernization idea would require additional investment by taxpayers. Its cost would be dependent on how Congress structures the incentive and its duration. The alternative, however, if sales do not rebound quickly, is more jobs losses, more home foreclosures, and less revenue for governments that must provide more jobless and health care benefits.
In addition to its consumer benefits, this initiative would help reduce our carbon footprint. Automakers are accelerating efforts to reduce greenhouse gases, but the latest fuel-economy rules apply only to new cars. This proposal would help America get greener faster by retiring a portion of the 240 million vehicles on the road. It could reduce our CO2 emissions by millions of metric tons per year.
Fuel efficiency means lower costs The program also would help contribute to greater energy independence. Replacing an older car with a new, more fuel-efficient one drives down gas consumption. That helps consumers, too. In fact, the Department of Energy estimates a family could save $780 per year by moving from a vehicle with 18 miles per gallon to one with 30 mpg.
The auto industry, both foreign and domestic, needs to work together to do our part in turning the economy around. But we also need to use the tools that our government possesses, and routinely deploys in so many other ways, to help move the economy more swiftly to a better place.
Improved auto sales will be one of the key indicators that America is on the road to economic recovery. As Congress weighs a national energy policy, climate change or even more stimulus measures, we urge lawmakers to consider this market-based consumer incentive. This fleet modernization idea would be a winwin-win for the consumer, the economy, the environment.
But we still face an immediate and serious challenge. Last week, President Obama observed that U.S. auto sales have seen a huge drop-off, starkly noting "every automaker is getting killed right now." In just one year, U.S. auto sales have fallen by nearly 50%. And March's sales numbers promise to be sobering for foreign and domestic automakers.
This unprecedented trend is sustainable for neither the industry nor the economy. We urgently need to draw reluctant consumers back into the marketplace. The good news is that there is a proven initiative, outlined by the president on Monday, that can help consumers overcome their fear. The plan also would help the environment and increase energy security. It has been called a "fleet modernization" or a "scrappage" program. Whatever the name it works.
In January, the German government enacted a consumer incentive equivalent to $3,200 to scrap automobiles that are at least 9 years old and buy new, more environmentally advanced vehicles. By February, sales of new vehicles jumped 21% over the same month a year before. Countries such as Japan, France, Italy, South Korea and others are considering or already have similar programs.
This model can work in the U.S., too. President Obama said that he would like to use parts of the economic stimulus package to fund a program that would give consumers a "generous credit" when they replace an older car with a new, more fuel-efficient car.
President Obama has rightly emphasized the importance of vehicle fuel-efficiency gains and expressed concern about shrinking U.S. auto sales and the risk it poses to the economy. This program could help the environment and jobs.
How the program would work Here's how one bipartisan proposal before Congress would work to stimulate new vehicle purchases. The program would provide vouchers to consumers for vehicles at least 9 years old. The vouchers likely would be worth more than the current value of their vehicle. For example, a consumer who turns in an older car could get a voucher ranging from $4,000 to $5,000 to use as a down payment on a $20,000 car that exceeds 27 miles per gallon. Combined with current auto sales incentives, consumers likely will get unprecedented deals on more fuel-efficient cars.
An independent analyst, Barclays Capital, estimates that this proposal could boost sales by 2.5 million units if 2% of eligible vehicles were traded in. This surge in sales would help preserve American jobs in communities across the country.
Taxpayers are rightly concerned about the federal deficit given the significant spending on the economic stimulus. Let me clarify, Ford is in a different position and is not seeking emergency taxpayer assistance. Nonetheless, Congress needs to spur consumer demand for autos the largest purchase a family makes after a home.
This vehicle modernization idea would require additional investment by taxpayers. Its cost would be dependent on how Congress structures the incentive and its duration. The alternative, however, if sales do not rebound quickly, is more jobs losses, more home foreclosures, and less revenue for governments that must provide more jobless and health care benefits.
In addition to its consumer benefits, this initiative would help reduce our carbon footprint. Automakers are accelerating efforts to reduce greenhouse gases, but the latest fuel-economy rules apply only to new cars. This proposal would help America get greener faster by retiring a portion of the 240 million vehicles on the road. It could reduce our CO2 emissions by millions of metric tons per year.
Fuel efficiency means lower costs The program also would help contribute to greater energy independence. Replacing an older car with a new, more fuel-efficient one drives down gas consumption. That helps consumers, too. In fact, the Department of Energy estimates a family could save $780 per year by moving from a vehicle with 18 miles per gallon to one with 30 mpg.
The auto industry, both foreign and domestic, needs to work together to do our part in turning the economy around. But we also need to use the tools that our government possesses, and routinely deploys in so many other ways, to help move the economy more swiftly to a better place.
Improved auto sales will be one of the key indicators that America is on the road to economic recovery. As Congress weighs a national energy policy, climate change or even more stimulus measures, we urge lawmakers to consider this market-based consumer incentive. This fleet modernization idea would be a winwin-win for the consumer, the economy, the environment.
Bill Ford is executive chairman and chairman of the board of Ford Motor Co.