Zacks_Analysts' Blog : Trade In Your Gas Guzzler - Analyst Blog

Under the program, consumers would be able to trade in their old gas-guzzling cars and trucks for a value of up to $4,500. The National Highway Traffic Safety Administration will look into the nitty-gritties of the program known as Car Allowance Rebate System (CARS).

Consumers would be eligible for the program if their trade-in vehicles have a mileage of no more than 18 miles per gallon (mpg), are not older than 25 years and are models dated 2001 or earlier. These apart, the vehicles should also meet specific ownership and insurance criteria.

CARS would no doubt help the industry leaders of fuel-efficient vehicles such as Honda (HMC) and Toyota (TM) to strengthen their market in the U.S. The program on the other hand would surely make it difficult for US automakers like General Motors and Ford (F) to market their heavily focused pickups and SUVs.

Honda offers several fuel-efficient vehicles. Both of its Fit and Civic models clock a commendable 30–31 mpg, while both Accord and CRV log about 25 mpg.

Further, Honda has aimed to tap the huge potential offered by the global market for hybrids. Hybrids are expected to become a smart choice for consumers in the future, as they generate savings due to fuel efficiency that more than offset the price difference with the non-hybrid ones. Honda intends to increase hybrid sales to 500,000 vehicles per year early in the next decade, which is equivalent to 15% of its current sales volume.

Toyota’s fuel-efficient vehicle offerings include cars such as Yaris (32 mpg), Corolla (31 mpg), Camry (25 mpg) and crossover RAV4 (23 mpg). The company also owns the well known and highly accepted Prius hybrid, which gets 47 mpg.

CARS is targeted to help finance up to 220,000 new car purchases, or about 12 per dealer, in the U.S. Additional funding has also been promised if the program runs successfully. However, in that case, the manufacturing output for fuel-efficient vehicles might require a boost.

We continue to recommend the stocks of TM, HMC, and F as Hold.