Posted by: David Kiley on July 29, 2009
Now that the “Cash for Clunkers” bill is ramped up and driving car-buyers into the showroom, let’s start writing the next one, or Phase 2 of the Clunkers bill.
Just to review: The Cash for Clunkers bill, technically known as Consumer Assistance to Recycle and Save (CARS), went into effect this week. Congress budgeted $1 billion in Phase 1 to give vehicle-buyers either $3,500 or $4,500 to trade in an old car to buy a new one.
As we have been reporting, the bill as written has some serious shortcomings. To qualify, the vehicle has to get less than 18 mpg.
If the new passenger car being purchased has a combined fuel economy that is at least 4, but less than 10, miles per gallon higher than the traded-in vehicle, the credit is $3,500. If the new vehicle has a combined fuel economy value that is at least 10 miles per gallon higher than the traded-in vehicle, the credit is $4,500.
When it comes to trucks and SUVs: If the new vehicle has a combined fuel economy value that is at least 2, but less than 5, miles per gallon higher than the traded-in vehicle, the credit is $3,500. If the new truck has a combined fuel economy value that is at least 5 miles per gallon higher than the traded-in vehicle, the credit is $4,500.
Despite the fact that automakers and analysts tell me that the bill is going to juice July and August sales for the automakers, let’s look at what is wrong with the bill. It is tipped way too much in the favor of selling pickups and SUVs and not nearly enough toward making an improvement in the fuel efficiency of the U.S. car park.
The bill was funded with just $1 billion. Congress is expected to take up the issue again in the Fall and consider a Phase 2 Clunkers bill that might be funded with an additional $2 billion or $3 billion.
Let me offer a suggestion on how the bill for Phase 2 should be written to simplify it for consumers, drive sales and make a better environmental impact.
$2,500 if you trade in an old vehicle no more than 20 years old, and buy a new vehicle or used vehicle that gets at least 8 mpg more than the old one.
$3,500 if you trade in an old vehicle no more than 20 years old, and buy a new vehicle or used vehicle that gets at least 12 mpg more than the old one.
$4,500 if you trade in an old vehicle no ore than 20 years old, and buy a new or used vehicle that gets at least 15 mpg more than the old one.
I have included used vehicles here to put the rebates within better reach of lower income consumers. Buying up used cars that qualify not only helps dealers, but also the residual values of higher fuel economy vehicles.
The bill does get old, more polluting vehicles off the road as the trade-in value of the cars has to be less than the incentives offered by government and the car companies in order to work for the buyer. Because the vehicles get scrapped, there is no “trade-in” value of the vehicle. So, that rusty 1989 Jeep Cherokee that still runs would have to be worth much less than the $4,500 you’d have coming if you were trading up to a Honda Fit or Ford Fusion Hybrid.
This bill, as I wrote it, also rewards everyone for making a substantial step-up in fuel economy, whether the current car is a high-mileage 2000 Ford Crown Victoria or a 1998 Subaru Outback, and the consumer wants to buy, say, a Ford Escape Hybrid or Fusion Hybrid. In these two examples, there is no “clunker benefit” to the consumer for either the Crown Vic or the Subaru despite the fact the trade-in would result in a far greater fuel economy boost for the owner than, say, trading one old rusty, high-mileage pickup truck in for a new pickup truck.
Also, if the consumer is going to buy a hybrid or diesel that qualifies for another government credit, the buyer should be able to avail themselves of both credits.
The United Auto Workers and Alliance for Automotive Manufacturers needlessly made Phase 1 of the Clunkers bill overly complicated, and also tilted, by way of their influence in Washington, the bill toward boosting sales of pickups and SUVs.
My bill is vehicle agnostic, and simply incents people to buy much more fuel efficient vehicles. The entire Phase 2 bill could fit on one page if they followed my idea.