U.S. Launches Auto 'Clunker' Program

July 27, 2009

The U.S. government launched a $1 billion cash incentive program on Friday to stimulate auto sales by getting consumers to part with gas guzzling cars and trucks and buy more fuel efficient vehicles.

The program, which offers up to $4,500, will be overseen by the Transportation Department.

Dealers and manufacturers are offering additional incentives, including matching funds in some cases, to help boost sales.

Congress approved the program to help the U.S. auto industry after handing out billions of dollars in bailouts and the bankruptcies of General Motors Corp and Chrysler Group.

Efficiency terms established by the Transportation Department are narrow enough to help GM, Chrysler and Ford Motor Co sell their bread-and-butter pickups and sport utilities, even though passenger cars as a class get better gas mileage and give off fewer carbon emissions.

Overseas automakers like Japan's Toyota Motor Corp and Honda Motor Co dominate sales of fuel-efficient passenger cars in the United States.

Trade-ins must get no more than 18 miles per gallon, they must be drivable and no more than 25 years old. No model later than 2001 will qualify. Trade-in vehicles must also meet specific ownership and insurance criteria.

The government estimates the program will help finance up to 220,000 new car purchases, or about 12 per dealer in the United States. The program is not expected to boost manufacturing output unless it is extended beyond $1 billion.

Congress has not ruled out additional funding if the program is successful. (Reporting by John Crawley; Editing by Toni Reinhold)