The 'Other' Auto News: Obama's Scrappage Program

There was a selloff today, but it was on very light volume. Not surprisingly, bank stocks, which have collectively rallied 50 percent in the last three weeks, were down about 10 percent as a group.

Techs and commodity stocks led a modest rally late in the day.

The major indices came off their lows at 3 PM ET on word from the WSJ that the Obama administration was pushing bankruptcy as the lead option for GM and Chrysler, seeking to split both into "good" and "bad" companies.

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Whether or not you can actually split a company into "bad cars, good cars" is unclear, but we are definitely heading toward some kind of denouement, and that can only be a good thing.

The government needs to force a dramatic restructuring of GM and Chrysler. Among GM's U.S. fleet, everyone believes that Cadillac and Chevrolet is viable, and that Buick, GMC, Pontiac and Saturn likely are not.

Big news: a scrappage program is coming. Lost in all this bankruptcy talk is President Obama's endorsement today of a scrappage program aimed to boost auto sales, which will likely be funded from the stimulus program and made retroactive. These programs give consumers a rebate on the purchase of a new car when they trade in or "scrap" their old car.

Would this make a difference in sales? In Germany, where a program is now in place, the program has experienced a 2.4 percent "take" rate, according to Barclays; they estimate a similar take rate among U.S. eligible buyers could boost U.S. sales by 3 million units.

That is significant, in a year where many are expecting total sales of below 10 million units.

There are also indications Obama would support a second incentive that would allow for taxes paid on a new car to be deducted from the buyer's income tax.

Elsewhere, homebuilders will be in focus tomorrow, with earnings from Lennar and Case/Shiller home price data.

More Companies in the News:

Berkshire Hathaway

JPMorgan Chase



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