Business Checks

In an effort to spur new vehicle purchases and protect the environment, Congress has approved legislation to offer consumers $4,500 for trading in their gas-guzzling clunkers in exchange for newer, fuel-efficient vehicles.

Dubbed the “Cash for Clunkers” bill, the legislation was approved on May 5 by Congress and is headed for the House. The bill would be active for one year after it is signed, and would fund up to one million new vehicles. This could cost anywhere between $3 billion and $4 billion.

With auto sales down 30% from 2008 and #3 auto maker Chrysler in bankruptcy, Mike Moran, a spokesperson at Ford Motor Company (F: 6.26, 0.3982, 6.79%) said the legislation couldn’t come at a better time.

“With sales down, at this point, it’s an urgent need to pass this legislation,” said Moran. “It’s pretty significant that you have President Obama and house leaders coming to a compromise and moving forward, and we hope to see a similar action in the Senate.

Moran said the trade in incentives were a win-win on several counts, due to their capacity to stimulate the economy through sales and put help the environment by putting more fuel efficient cars on the road.

The concept of a monetary incentive for a junky trade-in has been around for years in foreign countries, including France, England and Germany. In Germany, sales of new, fuel-efficient cars went up by 20% once the program was enacted, and individuals like Moran are hoping for the same in America.

“We’re anxious to see how things pan out, because there’s been success in many other countries,” Moran said, pointing to Germany’s incentive of around $3,200 that helped to spur Germany’s economy.

“Seeing that it’s been successful in other countries, its clear that people in the political world regardless of party are encouraging those benefits and would like to see that opportunity here in the U.S.,” said Moran.

In March, President Barack Obama mentioned the Cash for Clunkers program in conjunction with restructuring plans for General Motors (GM: 1.65, -0.18, -9.84%) and Chrysler, but got lost in the din of worry over saving the two of the big three. The bill was also slowed by environmental concerns over whether people could trade in their clunkers for SUV-like vehicles and concerns over whether or not the new cars would be American-made.