Friday, June 19, 2009

Cash for Guzzlers Enacted

Yesterday the Senate passed this year's war funding bill, to which had been added the "cash for gas guzzlers" provisions that I described in early May. The bill should be signed by President Obama shortly and become law, just in time to help car dealers--including some who are losing their GM or Chrysler franchises--clear out the backlog of new cars that has accumulated during this protracted period of slow sales. The final version of this measure importantly requires that the "clunkers" traded in be scrapped, so that they don't end up consuming fuel and emitting pollutants somewhere else. While it is overly generous to new pickups and SUVs that would use only slightly less fuel than their predecessors, its minimum threshold of a 4 mpg improvement for passenger cars, or 10 mpg to qualify for the full $4,500 benefit, should still result in meaningful levels of avoided fuel consumption, while helping to compensate for the expiration of tax credits for many popular hybrid vehicles.

Every excursion I make into the details of energy-related legislation feels like a civics lesson. Cash-for-guzzlers took a lot of flak during its comparatively brief trip through the Congress, with the Wall St. Journal referring to it as "Cash from Lunkheads" and two prominent Senators penning an op-ed criticizing it roundly as "Handouts for Hummers". It probably couldn't have passed as a separate bill, and it just squeaked into the war funding bill in the Senate. It took a bit of scouting to track down its details, which appear as Title XIII of HR-2346, the "Supplemental Appropriations Act, 2009", carrying the vague description of "Consumer Assistance to Recycle and Save Program". While it clearly could have been better, from my perspective it's hardly the worst piece of energy legislation to come out of this Congress, considering that for the average motorist moving up from an 18 mpg car to one getting at least 28 mpg would save as much gas as a 50 mpg Prius consumes in total. Here are the basic rules, as I read them:
  • The car traded in must be no more than 25 years old, in drivable condition and certified at 18 mpg or less in EPA "combined fuel economy". (15 mpg for a typical SUV/light truck.)
  • It must have been insured and registered to the owner for at least one year prior to trade-in.
  • It must be shredded or crushed, though not before the auto recycler sells off any desirable parts.
  • The new vehicle must get at least 22 mpg (15 mpg SUV/light truck) and
  • at least 4 mpg more than the trade-in (1 mpg SUV/light truck) to qualify for a $3,500 tax-free voucher, or
  • at least 10 mpg more (2 mpg SUV/light truck) to qualify for the maximum $4,500 tax-free voucher.
  • It can't cost over $45,000.

If you are in any doubt as to whether your present ride qualifies as a guzzler, the Detroit News has provided this handy search tool.

Whatever its merits as energy policy, in some respects the cash-for-guzzlers program looks like a clever insurance policy for the government's investment in GM and Chrysler, which will only achieve its intended goals if these companies can survive the recession and live on to produce the efficient cars the administration targeted with its new CAFE standard. That requires selling millions more of the current models, which only conform to the current, lower standard of 27.5 mpg for passenger cars and 23.1 mpg for SUVs and light trucks. And while the legislation doesn't require qualifying new cars to be American or even American-made--that would have run afoul of WTO rules--the Detroit 3 stand to benefit disproportionately, given the generous benefits for the large vehicles that dominate their current mix. The program only runs from July 1 through November 1, 2009 and is funded at $1 billion, enough for around 250,000 cars. If you intend to take advantage of it, I wouldn't wait too long.

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