US drives its claws into scrappage deals

The US Senate, along with other governments across the globe, passed a new bill sometime ago entitled "Cash for Clunkers". The purpose of the bill is to remove older, inefficient cars from the road, and stimulate the auto industry, which has fallen on hard times. The bill has taken off seemingly well, however "Lawmakers in Washington rushed to back a $2bn extension to the US’s “cash for clunkers” scheme on Friday after an avalanche of applications exhausted the initial $1bn budget within days of launch".(Reed) Obama expressed that the bill is a great success, and explained that the administration was off on how quickly funding would go into the program. However, the White House explianed that there is enough money left to fund the program efficiently. "Similar programmes around the world with incentives to trade in old cars for new have given makers and retailers of cars a boost during their deepest downturn in decades".(Reed)Car sales have steadily been sloping upwards since this new method had been put into play. Yes, it has had its downfalls, but it seems to be benefiting in the long term. However, many believe also that this plan is a great threat and that sales will flatten by nexxt year when incentives decrease. "Another danger of the scheme is the pressure on carmakers’ pricing power, which analysts say could scupper any nascent recovery in car markets.This is something that distorts pricing for a long time,” said Arndt Ellinghorst, head of European automotive research at Credit Suisse. “It’s a huge threat.” (Reed)

This type of plan seems non-threatening. It acts based upon a reward process. If you trade in your car for a more efficient vehicle, you are rewarded with a better payment plan and or money. Nothing can be wrong about that. However, car companies can start raising prices of cars, thus making this kind of plan not as useful anymore. However, if theyre smart they wont raise prices to much if they can help it, thus smoothing out their sales and get the economy booming again.

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