Cash-for-clunkers Weak, But May Get Improved Later

by The New Republic | June 22, 2009

Josie Garthwaite has a good assessment of the "cash for clunkers" bill that just emerged from Congress. On an abstract level, the idea makes total sense as both a stimulus for automakers and a way to reduce greenhouse-gas emissions: People trade in their old, polluting cars and get a voucher to buy newer, cleaner, more efficient vehicles. Win-win, right? Except that the bill that actually passed has only modest requirements on how much more efficient the new vehicle has to be:

The government will in theory offer up to $3,500, for example, to a driver who trades in (at a participating dealer) a 16 MPG Hummer for a brand new SUV that gets a dismal 18 MPG.

As Business Insider points out today, there’s also the problem that if a car is worth more than the voucher for which it qualifies, the driver would be better off just taking the regular trade-in value. Vouchers don’t come as an addition to trade-in values because cars brought in under the cash-for-clunkers program have to be scrapped, so their trade-in value is essentially zero.

Now, getting a 16 mpg car off the road and replacing it with an 18 mpg model isn't nothing (in fact, it would actually save more gas than upgrading, say, a 30 mpg vehicle to a 35 mpg vehicle). But it's hard to believe that this is the most efficient way to reduce vehicle emissions. What's more, as Rob Inglis has pointed out, a lot of the savings from upgrading the vehicles marginally could be offset by the extra emissions required to manufacture all those new vehicles in the first place.

Still, the bill will provide a small boost to the auto industry—GM CEO Fritz Henderson estimates it could boost sales by 10 percent (though that pales to the 40 percent jump that Germany saw after its own, more ambitious program). And, on the plus side, the Senate version of the bill, attached to the war supplemental, only provides $1 billion in funding for a $4 billion program. So, as Keith Johnson notes, the Senate will need to revisit cash-for-clunkers this fall to prevent it from expiring, and there could be an opportunity to strengthen the bill. Dianne Feinstein is already assuring people that this will be the case.

--Bradford Plumer

Source URL: http://www.newrepublic.com//blog/the-vine/cash-clunkers-weak-may-get-improved-later