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Cash for Clunkers Boosts New Car Sales

6 August 2009 - News - Editor

In an ongoing effort to rejuvenate the U.S. auto manufacturing industry, an additional $2 billion has been allocated to CARS – Car Allowance Rebate System – more commonly referred to as "Cash for Clunkers". This is over and above the amount of $1 billion which was originally allocated to the program, giving consumers between $3,500 and $4,500 on the trade-in of older model gas-guzzling vehicles. Cash for Clunkers not only promotes going green and reducing motorists' carbon footprint, but at the same time is boosting new car sales which have been hard hit by the current recession.

While Cash for Clunkers has had the desired effect in increasing new car sales, critics of the scheme are quick to point out that it appears to be foreign manufacturers that are benefiting the most. Department of Transportation officials yesterday confirmed that the Toyota Corolla has beaten the Ford Focus to the top spot of new vehicles purchased through CARS. The Cash for Clunkers program is applicable to vehicles purchased after 1 July 2009 and was to end on 1 November. It has been so popular however, that the initial $1 billion allocated was close to being exhausted in less than a week after being launched, prompting the request for an additional $2 billion.

Environmentalists are of the opinion that the affect on the environment is likely to be minimal as long as automakers and consumers stick to vehicles run on fossil fuels. They are advocating extensive research and development into alternatives, such as electric cars – and it seems as if their appeals have not fallen on deaf ears. On Wednesday the US Federal Government named 48 projects to benefit from a $2.4 billion stimulus grant to step up the development of batteries and components for electric cars.

Top of the list of beneficiaries is Johnson Controls, based in Michigan and Oregon, with an amount of $299.2 million for the production of advanced batteries. Johnson is already at the head of the pack as a major producer of regular car batteries, as well as being a joint supplier with French company Saft for batteries used in electric vehicles produced by Ford, BMW and Mercedes. Michigan-based A123 Systems has been allocated an amount of $249.1 million, with KD ABG MI, LLC (a joint venture between Dow Chemical and Korean company Kokam), Compact Power, Inc., both based in Michigan, being third and fourth on the list. EnerDel in Indianapolis is fifth and General Motors in sixth place with an allocation of R105.9 million. Certainly, the race is on to capture the lion's share of what could prove to be a very lucrative market sector – and one which investors will no doubt be watching with keen interest.

 


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