@Risk

The N.Y. Times reported today that the secretary of transportation and the Senate majority leader both feel confident that the Senate will vote this week to revive the “cash for clunkers” program with an infusion of another $2 billion in funding, as the House did a few days ago.

If you haven’t heard already, the Car Allowance Rebate System (CARS) –popularly known as “cash for clunkers” –is a program designed to boost the U.S. auto industry while helping consumers trade in cars with low mpg ratings. Consumers can scrap their gas guzzlers in exchange for a credit of up to $4,500 toward the purchase of a new, more fuel efficient vehicle.

CARS was rolled out in late July, but in less than a week, the program burned through the $1 billion Congress had appropriated. Now, cash for clunkers is essentially stalled until both the House and Senate can approve more funds.

Some see the overwhelming success of CARS as a welcome sign of underlying demand among U.S. consumers.

“There obviously is a real pent-up demand in America,” Ray LaHood, the transportation secretary, says in the N.Y. Times article. “People love to buy cars, and we’ve given them the incentive to do that. I think the last thing that any politician wants to do is cut off the opportunity for somebody who’s going to be able to get a rebate from the government to buy a new automobile.”

His comments are echoed by Himanshu Patel of JP Morgan.

“Regardless of whether or not the program is extended with additional funding, the bigger takeaway from this news, in our view, is that it seems to confirm a very large degree of pent-up demand in the U.S. marketplace for new vehicles,” Patel told Supplier Business.

But, will the success of cash for clunkers necessarily bode well for U.S. suppliers?

Bloomberg.com reports that four of the top five models sold so far under the CARS program are made by foreign automakers. Vehicles made by the three largest U.S. automakers — General Motors Co., Ford and Chrysler Group LLC – accounted for only 47% of sales under the program through Aug. 1, according to data from the Department of Transportation.

According to the article, a “Buy American” provision was dropped from the final legislation because of opposition from foreign automakers and free-trade advocates who said it would conflict with U.S. obligations to the World Trade Organization.

Granted, some vehicles sold by foreign companies are manufactured in the U.S. But it appears that the majority of the vehicles that qualify for the CARS discounts –the most fuel-efficient cars, i.e.—are from foreign automakers.

So, I suppose it may be too early to tell to what extent U.S. suppliers will benefit from cash for clunkers.

And, even before we wade through all that data, I’d like to hear a critical analysis of the modeling that predicted $1 billion would be enough to fund this program until November, as was originally publicized.

In case your curious, here’s an interesting graphic of the Department of Transportation’s trade-in rankings to date, as printed in the N.Y. Times: