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Posted by: David Kiley on May 12, 2009
The Cash for Clunker bill winding its way through Congress, and expected to meet passage and the President’s signature within a month or so is written, thus far, in a way that does more to boost sales than curb CO2 emissions.
And as I read it, it is plain to see who gets screwed on this deal: car owners.
Let’s look at the proposed rule: The old vehicle being turned in for scrapping must get less than 18 mpg. New passenger cars with mileage of at least 22 mpg are eligible for vouchers. If the mileage of the new car is at least 4 mpg higher than the old vehicle, the voucher will be worth $3,500. If the mileage of the new car is at least 10 mpg higher than the old vehicle, the voucher will be worth $4,500.
So, if someone has a 2000 Subaru Legacy, which gets about 22 mpg and wants to buy a Ford Fusion Hybrid, 37 mpg, there is no benefit despite the fact that the person was buying an American car (albeit built in Mexico) and achieving a 68% gain in fuel economy. Or, let’s say I had a 1998 Chevy Lumina with fuel economy of about 22 mpg, and want to upgrade and do the right thing at the same time by trading to an Ohio-built Honda Civic that gets about 3O mpg. That’s a 30% gain in fuel economy. If I don’t care about helping U.S. workers, maybe I’m willing to trade it for a 34 mpg Honda Fit, or a Toyota Prius at 46 mpg. That’s a 100% gain in fuel economy.
Nope…sorry dude. Congress screwed you again.
However, if you have a pickup truck or SUV you want to flip, you are in luck!!!
Let’s say you have a 1999 4X4 Chevy Blazer (16 mpg) and want to get rid of it for, say, a Toyota RAV4 (24 mpg). Well, as the Brits say…”Bob’s Your Uncle.” That trade will get you $4,500 for the 50% gain in fuel economy.
The provision for getting light trucks and SUVs off the road, which is what environmental groups fought for, and won, is beyond lame. The 18 mpg threshold was reached so it would minimize people trading big pickup trucks for big pickup trucks and big SUVs, though several SUV and trucks have gained 2 miles per gallon in fuel economy in the last decade. Very few versions of those pickups and SUVs though get as high as 18 mpg for combined city and highway driving.
But here are some absurd trade-ins that will be subsidized by the government. I could trade in a 2001 Dodge Dakota with a lot of mileage, dinged up, maybe has engine trouble and needs a new clutch. That truck gets 15 mpg. I could then trade it, with $3500 from the government and get a Toyota Tacoma that gets 19 mpg.
The lynchpin in these voucher deals is that the government rebate plus the factory and dealer incentives has to be a better deal than what you could get trading the car in or selling it. Because when you participate in this program, there is no trade-in value of the old car. It’s going for scrap.
The easiest way to do well in this program is to trade in old SUVs and pickups you have been nursing along. A Chevy Blazer with 300,000 miles in need of a new tranny….and trade for a new car. It could be that there are a million or so of those trades waiting in the weeds for the right deal.
The original legislative language called for protectioinism: U.S. built vehicles would get a bigger incentive that those made in Mexico and Canada. There would have been no benefit for foreign-built cars, including the Toyota Prius, Nissan Versa, Saturn Astra, Toyota Yaris, etc. Those measures were knocked down in committee.
But the strict limits placed on cars that can be traded for meaningful fuel efficiency gains is stupid. Fuel savings are fuel savings whether you are driving a car or truck or an SUV.
Even before the bill is finalized and signed, CNW Research shows that 68% of drivers polled said they are not very interested or not interested in participating. Of the 32% who are very to greatly interested, or somewhat interested, very interested accounted for just 1.28%, and the average age vehicle among that group is 14.2 years. CNW estimates that 1.3 million people would try and take advantage of the program.
Couple of observations: GM, Ford and Chrysler each have most of the trucks and SUVs the greens want to get off the road. Toyota and Honda have the most popular crossovers SUVs that would be the natural “walk” if you were going from a Chevy Tahoe or Jeep Grand Cherokee. Don’t be surprised if the biggest beneficiaries in that swap are those two companies. I’m not sure how many traders from SUVs and pickups are looking to get into passenger cars, which is what the greens are hoping happens.
This bill seems a bit discombobulated to me. Perhaps the Senate version will clean it up. But I’m not hopeful.
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