THE CASH-FOR-CLUNKERS SCAM

Cash-for-clunkers program crashes up against the environment; Getting vouchers to turning in your old guzzler for a new guzzler does nothing to promote more efficient cars.
Dan Becker and James Gerstenzang, May 17, 2009 (LA Times)

SUMMARY
The “cash for clunkers” provision in H.R. 2454, the American Clean Energy and Security Act of 2009 (ACESA), now being marked up by the House Energy and Commerce Committee, was supposed to provide tax credit subsidies to car buyers who would trade their gas-guzzlers in for more fuel efficient U.S.-made vehicles. The idea was that taxpayers would be getting a little green for going further into the red.

The bill’s actual provisions fall a little short of the spirit of that deal. It gives a $3,500 tax credit to anybody trades a car in for any 2009 car whose fuel efficiency is a 4-miles-per-gallon improvement. It gives a $4,500 tax credit for purchasers of a new truck with a 5-miles-per-gallon fuel efficiency improvement or a new car with a 10-miles-per-gallon fuel efficiency improvement.

Illustration by David G. Klein for the NY Times. (click to enlarge)

Provisions for older vehicles even more generously subsidize new vehicle purchases without obtaining substantive emissions reductions. Example: A $3,500 subsidy tax credit goes to anybody who trades in a pre-2002 8,500-pound "work truck" like a Dodge Ram or a Ford Super Duty pickup for a new 8,500-pound pickup, even with a 1-mile-per-gallon fuel efficiency improvement.

As much as $4 billion of taxpayer money will go to pay for the program.

The White House announced support for the cash-for-clunkers measure.

Germany instituted Abwrackprämie, ("wreck rebate") in January. It reportedly was budgeted to cost 1.5 billion euros (~$2 billion) but has reached a cost of 5 billion euros (~$6.9 billion).

According to critics, Abwrackprämie has created a dependency by German car makers, who are now demanding its extension. At least one think tank study found that 75% of the cars sold with the subsidy would have sold anyway.

Abwrackprämie has, however, cut greenhouse gas emissions in Germany because the fuel efficiency of German cars in the last 5-to-10 years has significantly improved. Because U.S. vehicles have not similarly improved in fuel efficiency in recent years, such an emissions-reduction benefit cannot be expected from cash-for-clunkers.

From Bloomberg via YouTube

COMMENTARY
The cash-for-clunkers provision of the bill will do very little to improve air quality or reduce vehicle greenhouse gas emissions but it is expected to have a dramatic effect in clearing cars off car dealership lots. By stepping on the accelerator of new vehicle sales, cash-for-clunkers is a tremendous subsidy to the flailing U.S. auto industry.

The cash-for-clunkers provision of the energy and climate bill was curiously intertwined with the announcement of the Obama admininstration's new, more demanding fuel efficiency standards. Representative John Dingell (D-Mich), known on Capitol Hill as the Congressman from Detroit, took a break from the energy bill markup to sit in the front row at the Rose Garden announcement of the new fuel efficiency standards by President Obama. Dingell then returned to the Commerce Committee room in the Rayburn Office Building where the markup of the cash-for-clunkers provision in ACESA, for which the Congressman from Detroit proudly took full credit for having written, continued.

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It appears that the energy and climate change legislation’s authors, Congressman Henry Waxman (D-Calif), Chair of the House Energy and Commerce Committee, and Congressman Ed Markey (D-Mass), Chair of the House Energy Subcommittee, traded the green part of their cash-for-clunkers provision to Congressman Dingell for his support of the overall bill.

Senator Dianne Feinstein (D-Calif.) proposed an alternative to the House cash-for-clunkers measure in Senate energy and climate legislation that provides the same tax credits but requires the new car to have a 25% better fuel efficiency and the old car to have no better than a 15 miles per gallon new efficiency rating.

Although the House Republican minority is presently creating noisy obstruction of the energy and climate change legislation, the Democrats appear to have formed a strong enough coalition to get the bill out of Committee and to the House floor. The Democratic House majority, assuming the coalition holds, should pass the measure without significant opposition.

Cash-for-clunkers can, therefore, be expected – to the delight of the U.S. auto industry – to become law unless the Senator Feinstein’s proposal finds a way to win precedence. The question will be whether Capitol Hill can include the fight against global climate change into its effort to bail out the U.S. auto industry.

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QUOTES
- Representative John D. Dingell (D-Mich.), former Chair of the House Energy and Commerce Committee/author of the cash-for-clunkers provision of ACESA: "[Cash-for-clunkers would] result in hundreds of thousands of new vehicles being purchased across the country."
- Jos Dings, director, European Federation for Transport and Environment: "[Germany’s Abwrackprämie, ("wreck rebate") is a] methadone program for addicted automakers."

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- Becker/ Gerstenzang, authors, Cash-for-clunkers: “The competing pieces of legislation [from Congressman Dingell and Senator Feinstein] are on a collision course at one of the busiest Washington intersections this spring. That is where the need to stimulate the economy -- in this case, by boosting auto sales -- meets the need to fight global warming…If automakers are going to get another bailout at our expense, the least we can demand is that we get something for our money. That should be cleaner, more efficient cars that cut global warming gases, wean the nation from its oil addiction and save money at the pump…Anything less would be highway robbery.”