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‘Cash for clunkers’ push running out of gas?

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The ‘cash for clunkers’ bill may be creating some June Gloom for the U.S. auto market.

The controversial legislation, which would provide cash incentives of up to $4,500 to Americans who trade in older vehicles for newer, more fuel-efficient models, is currently stalled in the Senate. With that kind of cash hanging in the balance, potential car buyers may be putting off purchasing decisions — at a time when the auto industry is desperately trying to achieve a sustainable turnaround in sales.

‘The longer this bill, which is so important to the U.S. economy, remains stuck in Congress, the greater the pressures placed on all aspects of the U.S. automotive industry -- from suppliers to manufacturers to dealers,’ said John Krafcik, head of South Korean automaker Hyundai’s North American operations, which are based in Fountain Valley.

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According to a survey Hyundai released this week, 11% of consumers are currently holding out on buying a new vehicle until they see whether the legislation passes. Across all brands, that equates to about 100,000 vehicles in the U.S. market, based on the annual sales rate of almost 10 million vehicles that automakers achieved in May.

Dealers and auto companies worry that customer hesitation over the cash for clunkers legislation could blunt the modest pickup in sales activity they registered in May compared with the previous month.

The legislation is a bit complicated. Here’s how we described it in a Times op-ed piece last month:

If the gas mileage of any 2009 model passenger car you buy is just 4 miles per gallon better than the one you are now driving, you could pick up $3,500 from taxpayers as part of the deal.

And if your new vehicle produces more significant improvements in fuel economy over your old vehicle’s — 5 miles per gallon more for trucks and 10 miles per gallon more for cars — you could get $4,500.

Environmentalists grouse that the incentive program, which would last a year and could cost the U.S. Treasury as much as $4 billion, is little more than another bailout for the auto industry -- which has already received tens of billions of dollars in taxpayer funds. The fact that one of its co-sponsors, Democratic Sen. Debbie Stabenow, hails from Michigan has done nothing to allay those suspicions.

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The legislation has a patina of ‘green’ about it, but it would allow buyers of gas-guzzling pickup trucks and SUVs — the very vehicles that U.S. automakers rely on for their biggest profits — to reap sizable cash rewards for very modest improvements in fuel economy.

‘You could buy a 15 mpg truck that is only 1 mpg better than the one you are replacing and get $3,500,’ Therese Langer of the American Council for an Energy-Efficient Economy told the San Francisco Chronicle this week.

Sen. Dianne Feinstein, the San Francisco Democrat, introduced a bill with tougher fuel economy requirements, but industry pressure appears to have pushed her legislation to the sidelines.

Used-car dealers, meanwhile, are upset because the legislation doesn’t cover, well, used cars. Groups representing car repair outfits and companies that make replacement parts are opposed as well. Cars traded in under the program have to be scrapped, a requirement that would ‘unnecessarily crush perfectly good cars,’ according to the Diamond Bar-based Specialty Equipment Market Assn. (that’s SEMA, for all you tuners out there).

Similar bills have been passed in Germany, France and China and are credited with boosting auto sales in those countries. And Ford said today that Britain’s scrappage plan ‘has already started to have a positive effect’ on sales there.

Stabenow’s office didn’t return calls today seeking comment on the bill’s future. The auto industry hopes that the bill can still be salvaged, especially given the Obama administration’s backing for some form of scrappage bill.

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-- Martin Zimmerman

Photos: Sen. Debbie Stabenow, top, and Sen. Dianne Feinstein. Credits: Associated Press.

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