Emailing "Cash for Clunkers Moves One Step Closer to Reality"
Yesterday President Obama met with key Democratic lawmakers to push for action on climate change legislation, especially the carbon cap and trade bill under consideration in the House of Representatives. Not much action came out of the meeting, but there was an agreement to push forward to the "cash for clunkers" program to provide incentives for folks with older gas guzzlers. The new plan is weaker than the Sutton plan I blogged about
here, and it also removes one of the key objections to Sutton's plan, that vehicles be built in North America.
Under the new plan, four categories of vouchers are created. Under the passenger car category, the old vehicle must get less than 18 mpg. If the new vehicle gets at least 4 mpg better than the old vehicle, the government will give buyers a $3500 voucher. If the new vehicle gets at least 10 mpg better than the old vehicle, then the voucher will be worth $4500. Under the light truck category, the old vehicle must also get less than 18 mpg. If the new light truck or SUV gets at least 2 mpg better, then the voucher is worth $3500, while if the new light truck or SUV gets at least 5 mpg better, then the voucher is worth $4500. You can find more details of the plan
here.
The government estimates the plan might replace up to 1 million vehicles currently on the road, not a tremendous impact considering there are 250 million vehicles on US roads currently. There is still no mention of where the money for the plan will come from, and how the Senate will react to the plan.
The most charitable description I can think of for this plan is "modest." The auto industry could certainly use a lift in volumes right now, but a plan that only lasts for one year has a real danger of bottling demand on the early side as consumers wait to see more details, and evaporating demand at the end of the program as the artificial demand created by the program wanes. Plus, has anyone considered what this does to the value of older SUVs that qualify for the program? If I'm in the market for a new car or truck, I'd be looking anywhere I can to find a qualifying "clunker" so that I can get my government voucher. I'm sure this is not an intended consequence, but as with all legislation, the devil is very much in the details.
And can we please stop calling this "cash for clunkers"? Surely our government can come up with a better name than that.