The social tinkers in Washington have come up with another way to make you live a more environmentally-conscious life, and boost Obama Motors sales as well. Senate Poised to Pass ‘Cash for Clunkers’ Bill
Sens. Debbie Stabenow, D-Mich., and Sam Brownback, R-Kan., introduced an amendment Tuesday that would set up a program that allows consumers with older, less fuel efficient vehicles to trade in their “clunker” for a voucher worth up to $4,500 toward the purchase of a new car that must get at least 22 miles per gallon or an SUV or pickup that gets at least 18 mpg — clearly a focus on U.S. manufacturers.
The one-year program is expected to help sell 1 million vehicles, according to Stabenow and Brownback.
The definition of “clunker” is a vehicle that gets 18 mpg or less, and the voucher size varies. Owners who purchase a new passenger car that gets at least 4 mpg higher than their old “clunker” get a $3,500 voucher. If the mileage difference is more than 10 mpg, the consumer gets the full $4,500.
Buyers of small trucks and SUV’s fare better. If the new vehicle gets at least 2 mpg more than the “clunker,” a $3,500 voucher is issued; for new trucks or SUV’s getting more than 2 mpg, the new car owner gets $4,500.
The Foundry has some thoughts on unintended consequences:
…Secondly, brand new cars aren’t even a consideration for most consumers. They go straight to the used car market, especially in a recessionary environment. This program would largely distort the used car market in a number of ways. If the idea is to get older cars off the road, the supply of used cars will be reduced at a time when demand has been increasing. Economics 101 suggests this will raise the sticker prices of used cars for people who can barely afford them in the first place. Driving up the cost of older cars may be an intended consequence for policymakers to encourage people to buy new, but it’s a bad deal for consumers.
Again, because the idea is to get older, “inefficient” cars off the road, cash for clunkers distorts the used car part market. In a good Q&A the USA Today about the cash for clunkers program, one question reads, “What will the dealer do with my old car?” The answer: “Gives it to a salvage operator. The engine, transmission and some other parts must be destroyed so they can’t be reused. The idea is to cull fuel-thirsty, polluting drivetrains. Operators can resell other parts, however.”
Back to Econ101. Reduced supply drives up the price of used auto parts and these engines and transmissions would probably be more efficient than the ones sitting in real clunkers at junkyards now.
Germany has this kind of program. What has the result been?
It was a mere footnote in the German government’s latest €50bn fiscal stimulus. But a scrapping bonus aimed at encouraging new car purchases has become such a success that it has left Berlin facing up to three times the measure’s initial €1.5bn price tag.
The popularity of the bonus is causing headaches for the government and raising questions about the merits of the state seeking to influence consumers’ spending agendas.
…But there are also problems in Germany. Retailers, for instance, say the bonus is shifting spending patterns rather than creating demand. Higher February car sales coincided with falling turnover at consumer electronics stores. Stefan Genth, managing director of the HDE retailers’ federation, slammed the bonus last week, saying it was “sucking out spending” from the retail sector.
Initial cost to taxpayers?
The plan wouldn’t add to the federal deficit because it uses funds already set aside for stimulating the economy, said Senator Sam Brownback, a Kansas Republican. Preliminary estimates put the cost of the legislation at $3 billion to $4 billion, Stabenow said.
U.S. automakers including Ford Motor Co. are pushing Congress to approve such a measure after the success of a similar program in Germany. France and Italy also provide payments to scrap older vehicles.
Only a lefty would call increased government intrusion into the market and higher spending a success.