"Cash for Clunkers" Plan Draws Fire

By Roland Jones
|  Saturday, May 2, 2009  |  Updated 1:06 AM EDT
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"Cash for Clunkers" Plan is a Road to Nowhere: Critics

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Is Congress taking a wrong turn away from energy conservation?

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A plan to boost auto sales by yanking old, polluting vehicles from the roads is gaining ground on Capitol Hill, but some critics say the proposal won’t work and should be dumped at the nearest scrapyard.

The bill, introduced by Sens. Dianne Feinstein, D-Calif., Susan Collins, D-Maine, and Charles Schumer, D-N.Y., offers drivers who trade in an older vehicle model with a with a fuel economy rating of 18 miles per gallon or less a $4,500 voucher toward a new, fuel-efficient car.

President Barack Obama has said he supports the idea. The plan would not only give a boost to moribund new-car sales but also have the added benefit of removing older, low mileage, pollution-spewing vehicles from U.S. roads, replacing them with cleaner, higher-mileage cars.

Similar cash-for-clunkers plans have enjoyed success in Europe. New-car sales rose last month in France, Italy and Germany, boosted by incentives of up to $5,000 for buyers willing to swap an old car for a more fuel-efficient vehicle. A similar initiative was approved in the United Kingdom this month.

But opponents of the U.S. plan say that while it would reduce car emissions the structure is too narrow to bring the sustained growth in greener car sales that backers want to stimulate.

“The way to look at this is if Congress wants to boost the automotive industry for six months or so it makes sense, but if you want something long-term, and you’re really concerned about oil imports, energy security and climate change, there are more effective policies out there,” said Daniel Sperling, director of the Institute of Transportation Studies at the University of California, Davis, and author of “Two Billion Cars: Driving Towards Sustainability.”

The parameters of the Senate “Cash for Clunkers” bill — formally titled the “Accelerated Retirement of Inefficient Vehicles Act of 2009” — are narrow, according to an analysis by Arlington, Va.-based investment bank FBR Capital Markets. The bill limits eligibility to fewer than 5 percent of U.S. vehicles, according to the report, and the participation rate is likely to be much lower than that.

While the American Council for an Energy-Efficient Economy estimates the program would remove 575,000 older vehicles from the roads each year, the FBR report calls that figure unrealistically high.

“A review of the costs of a fuel-efficient vehicle show that even after the voucher and fuel savings, the marginal benefit of participating in the program is less than clear, especially given the consumer preferences of drivers who own 10- (to) 18-year old SUVs and pickup trucks," the investment bank report concluded.

The vehicle trade-in plan is unlikely to drive significant behavior changes for the owners of these fuel-swilling sport utility vehicles and pickup trucks, FBR said, because with gasoline prices below $2.50 a gallon, there is little incentive for drivers to swap into smaller, more fuel-efficient vehicles.

“In our view, the impact of a ‘cash for clunkers’ program on U.S. automakers, secondary market dealers and suppliers has been overstated,” FBR said. “Proposals that are impactful enough to be effective are likely to be prohibitively expensive, while a frugal approach is unlikely to generate significant participation.”

The details of the proposal also are still being debated. A battle is brewing over whether foreign-made cars and trucks should be included, and auto parts makers say they will be hurt  by the retirement of so many older vehicles.

The University of California’s Sperling says there are more effective policies exist for reducing fuel consumption, such as raising the fuel economy standards, introducing low-carbon alternative fuels or a imposing higher gas taxes. Revenue from a tax hike could be used to invest in developing more fuel-efficient vehicles. “Feebates” would impose a tax on gas guzzlers while providing rebates on fuel-efficient cars.

 

Sperling also cautions that encouraging consumers to buy new cars can have unintended consequences. The “rebound effect,” for example, leads new-car owners to drive their vehicles more because they are new and fun to drive, as well as more fuel-efficient.

A new car is typically driven between 15,000 and 18,000 miles a year in its first three years of ownership, while a car owned for 10 years is driven between 5,000 and 6,000 miles a year and a 15-year-old car is driven only 2,000 miles on average.

In the end, the greatest benefit from any new car program will come from reduced smog emissions, Sperling said.

“Old cars tend to be much more polluting in terms of smog, much worse than new ones, and they can be 100 or 1,000 times worse in some cases,” he said. “Emissions have been dramatically reduced in new cars, so this is the area where you’d get the most impact.”

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