Cash for Clunkers Pulled from Stimulus

WASHINGTON (Reuters) -- One proposal to help jump start U.S. auto sales was withdrawn late Thursday and the fate of another was unclear, despite a vigorous endorsement from President Barack Obama, as Senate consideration of economic stimulus legislation accelerated.

Sen. Thomas Harkin, an Iowa Democrat, pulled an amendment that would have provided $16 billion in rebates to buyers of new fuel efficient vehicles who traded in their old, poor performing models.

Harkin said he would defer the so-called "cash for clunkers" proposal, which had strong support from U.S. automakers.

Lobbyists for those companies this week called it a genuine stimulus for a depressed market. U.S. auto sales plunged to a 26-year low in January.

There was no backing, however, for the plan from foreign manufacturers whose operations are clustered in states represented by conservative Republicans.

The provision required that the vehicle be assembled in the United States, a nod to General Motors Corp (GM, Fortune 500), Chrysler LLC and Ford Motor Co (F, Fortune 500), all struggling financially and all based in economically hard-hit Michigan. Those companies' domestic operations are unionized.

Automakers and suppliers are pushing hard for additional help from Washington, which extended GM and Chrysler a $17.4 billion bailout in December.

The Treasury Department has extended domestic auto finance companies capital to help stimulate lending and is considering additional steps to unlock tight consumer credit.

Still, U.S. automakers are banking on additional assistance from Congress.

Lawmakers also are weighing proposals in and outside of stimulus legislation to fund battery research for plug-in hybrids and other alternative fuels.

Also under consideration in the Senate stimulus bill is a $600 million plan for the government to purchase tens of thousands of fuel efficient vehicles to replace inefficient models in the fleet.

Obama Thursday struck back at critics of the plan, saying that it would reduce gasoline consumption and help revive sales.

"It will not only save the government significant money over time, it will not only create manufacturing jobs for folks who are making these cars, it will set a standard for private industry to match," Obama said in an appearance at the Energy Department.

Senate Minority Leader Mitch McConnell called the new vehicle program wasteful spending.

"I doubt if the government buying $600 million worth of automobiles would provide the kind of stimulus that we're talking about here," McConnell said Sunday in an appearance on the CBS program "Face the Nation."