US boosts car scrappage by $2bn

US car sales rose in July

The US Senate has approved a further $2bn (£1.19bn) for the car scrappage scheme after initial funds of $1bn ran out in 10 days.

Senators voted by 60 to 37 in favour of more funding for the government's Car Allowance Rebate System (CARS), dubbed the "cash for clunkers" plan.

Owners of old cars and trucks gain up to $4,500 towards a new vehicle in exchange for their old model.

Recent figures showed US car sales in July were boosted by the scheme.

'Temporary gimmick'

"'Cash for clunkers' has been a proven success," US President Barack Obama said after the vote.

CASH FOR CLUNKERS Car owners can gain a voucher worth $3,500 for trading in a vehicle getting 18 miles per gallon or less for a new car getting at least 22 mpg Car owners can gain vouchers of $4,500 for those trading in a car getting 18 mpg or less in exchange for a model that gets at least 28 mpg The Car Allowance Rebate System is based on similar schemes in the UK, France, Germany, Italy and Spain that have boosted new car sales.

"The initial transactions are generating a more than 50% increase in fuel economy; they are generating $700 to $1,000 in annual savings for consumers in reduced gas costs alone, and they are getting the oldest, dirtiest and most air polluting trucks and SUVs off the road for good," he added.

Those backing the programme have applauded the scheme for its economic benefits and what they see as environmental benefits.

"The reality is this is a programme that has been working," said Senator Debbie Stabenow.

"Consumers believe it's working. Small business people believe it's working. People who make steel and aluminium and advertisers... and everyone who's involved in the larger economic impact of the auto industry believe it is working."

But some analysts and critics say the benefits will only be temporary.

Republican Richard Shelby, of the Senate Banking Committee, said the plan had "squeezed months of normal activity" into several months.

Economist Richard Yamarone of Argus Research said: "Once these clunker rebates expire, it is over."

"Consumers are not going to keep buying cars. It is a temporary one-time gimmick, not a long-lasting tonic for the recovery."