It sounds good: Help both the American auto industry and the environment by paying people to trade their high-polluting, gas-guzzling vehicles for more fuel-efficient ones. Similar initiatives that send old cars to the salvage yard have worked in Germany and Texas. But the $1 billion "Cash for Clunkers" program Congress has approved is the epitome of good rhetoric creating bad policy.
To win approval, Congress tacked it onto a must-pass war spending bill (HR 2346) after a conference committee. President Barack Obama signed the bill Wednesday to fund war spending in Afghanistan and Iraq through September.
Cash for Clunkers will operate just four months, from July 1 to Nov. 1. To qualify, owners' cars must be manufactured since 1984 and have a "combined fuel economy value" of 18 miles per gallon or less, as determined by the U.S. Environmental Protection Agency. In exchange for trading in their cars for scrap, owners will receive $3,500 toward a new car that gets at least 22 mpg. Owners of sport utility vehicles, trucks and minivans could get the same rebate if they trade in an 18 mpg or less vehicle for one that gets at least 20 mpg. The payout would grow to $4,500 if the new car's mileage is higher. Owners must prove they have continuously insured the trade-in for at least a year prior.
The program's simplicity is also its downfall. It is tied to buying new cars, so losing out are families whose only dream of a new car sits on a used car lot. Also, the arbitrary mileage requirements mean there is no reward for drivers who long ago opted out of the gas-guzzling market or who are now willing to trade their 19 mpg car in for a hybrid or some other gas sipper.
Analysts are doubtful that the program will provide any meaningful boost for the auto industry. The program would cover just 250,000 sales, a mere pittance compared to the 10 million sales expected this year, down from 17 million in 2007.
Supporters point to a similar program in Germany that reportedly sparked a 20 percent increase in car sales. But that program was married to a broader environmental policy, including a forthcoming gas tax based on carbon emissions that would tax clunkers more. Voucher programs in Texas are limited to cars that are 10 years old or have failed an emissions test. Eligibility is also capped by income — recognizing that the vast number of clunkers belong to families with limited means. For a family of four, the cap is $66,000. And the vouchers can be used on cars up to three years old.
But the congressional plan has none of that or other, fairer ways to stimulate car sales and move American drivers to a modern fleet to help air quality and lessen the dependence on fossil fuels. Congress could again make car loan interest tax deductible, for example. It could raise the federal gas tax — which would increase the demand for high-mileage cars. Or it could offer incentives for anyone who trades in a vehicle and buys another with a certain percentage improvement in fuel economy.
But as is, Cash for Clunkers is too simple to get the job done efficiently. Particularly in a time of rising national debt, Congress had no business throwing $1 billion at such an ill-conceived idea.