Cash For Clunkers Bill Proposed in US House
By Chris Haak
US Representative Betty Sutton (D-Ohio) has written a bill that gives consumers between $3,000 and $5,000 for buying a new vehicle that is more fuel efficient than their old one. Ms. Sutton’s bill also provides a $3,000 mass transit voucher to anyone who turns in an old car. Under the bill, cars that are scrapped have to be at least eight years old, and the new cars purchased have to be 2009 or newer model years. To be eligible for an incentive, the new car has to achieve at least 27 miles per gallon on the highway, and incentives are higher based on where the vehicle is assembled (more money for US-built cars) and how fuel efficient it is (more money for more fuel efficiency). The new vehicle must also cost less than $35,000.
Although the bill’s passage is far from assured, both the UAW and the Detroit Three are in favor of it. Many in the auto industry have been asking for some Congressional action that would help stimulate new-car demand for the past few months, and this proposal might do that trick. Amidst an environment that saw overall Western European sales fall by 17.7% in February 2009, Germany’s actually climbed by 21.6% during the same period. Germany’s sales bucked the trend because in February it instituted a voucher worth $3,260 for scrapping vehicles more than nine years old, and at least some folks are seeing inspiration from Germany’s (at least temporary) success with such a program.
Longer-term success of the program is not guaranteed. For one thing, most people driving around in cars worth less than $3,000 are probably not in the market for a new car, even one at a price subsidized by the Federal government. For another, the supply of scrappable cars will eventually dwindle. If you have a $100 piece of junk today, you could theoretically sell that to someone for $2,999 the day this bill became law. Finally, just as the sales impact of employee pricing discounts softened over time, and research showed that buyers who were already intending to buy a car later in the year just pushed up their purchase timeline to take advantage of the deals, leaving few buyers in subsequent months, an artificial demand stimulus like Rep. Sutton’s proposed bill might have a similar effect.
Rep. Sutton’s bill also contains a $7,500 cash voucher starting in the 2011 model year for purchase of a plug-in electric hybrid that gets at least 100 miles per gallon. That provision is obviously targeted at the Chevrolet Volt, which is expected to be a 2011 model year vehicle (GM said today that it expects the Volt’s on-sale date to be November 2010).
The Alliance of Automobile Manufacturers, an industry consortium made up of 11 companies ( BMW Group, Chrysler LLC, Ford Motor Company, General Motors, Jaguar Land Rover, Mazda, Mercedes-Benz USA, Mitsubishi Motors, Porsche, Toyota and Volkswagen) is opposed to the proposal, as it treats member companies differently. Generally, car collectors are opposed to these types of programs as well, because it increases the price and decreases the availability of parts cars. Once an old car is removed from the rolls and crushed, it’s no longer offering parts to keep a true classic – or even a “neo-classic” – on the road.
I’m in favor of it, even in spite of the likelihood of its success limited to a relatively-short time frame. We need to get the economy moving again, and selling a few hundred thousand additional vehicles for a few months seems like a decent start. That being said, the auto market may never recover, and we certainly won’t see any kind of measurable recovery until the economy at large – and therefore consumer confidence – begins to recover. It’s also not a bad idea to get smelly old cars off the roads – of course, older cars cause far more pollution than do new cars.
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