Wednesday, June 07, 2006


One of the biggest impediments to making the US automobile fleet more fuel efficient isn't technology; it's the turnover rate. With 243 million cars and light trucks on the road, and car sales running at about 17 million vehicles each year, this is a very slow ship to turn--even if the trend favored efficiency over size and weight, which it hasn't until very recently. As I've suggested before, the length of time that consumers hold cars before replacing them isn't a constant. Although it has increased from 6.5 to 9 years since 1990, hardly anyone seems to treat it as a variable, and that could be a missed opportunity. How might consumers be encouraged to trade up to newer models at a higher rate, perhaps even approaching the 4-5 year average we saw in the 1960s? One possibility would be to provide direct incentives, mirroring localized programs used to get the worst polluting cars off the road. Call it "Junk A Guzzler."

In order to accelerate a shift to fuel efficiency, the buyback program would have to result in the destruction of a large number of the least economical cars on the road. Simply trading them in wouldn't be sufficient, because a used car gets sold on to someone else and could easily remain on the road another decade or more. That means that the program would have to purchase cars for more than they would be worth as trade-ins, probably by at least 10%, though even offering straight Kelley Blue Book could bring in a lot of cars in worse-than-average condition.

The program would also have to include restrictions on the kind of replacement vehicle toward which the buyback voucher could be used--I'm not advocating handing out cash. A good starting point would be to require that the new vehicle--and it ought to be new, not used--must get at least the automobile CAFE average for the year, currently 27.5 mpg. Upgrading a million 15 mpg SUVs this way would increase average fleet fuel economy by 0.25 mpg and save 375 million gallons of gas a year, or about 25,000 barrels per day. That doesn't sound like much, but our total production of ethanol is only 10 times larger than this volume. If this were done every year, the benefits would compound.

Clearly, this wouldn't be cheap, if it were done on a large enough scale to matter. Keeping the costs down probably requires targeting cars older than 5 years. There's probably a "sweet spot" in terms of maximizing the number of gas-guzzling cars junked at the lowest cost. That would have to be determined. We can make a rough guess by looking at the Blue Book values of 7-year-old SUVs. A 1998 Ford Explorer 4x4 in good condition with 72000 miles on it would fetch between $4-6,000. Junking a million such SUVs would thus cost more than $5 billion. That's not small, but it could be covered by increasing the federal gasoline tax by just 3.5 cents per gallon.

Aside from the obvious gas mileage benefits, this program would be a bonanza for struggling US car manufacturers. Even if GM, Ford and Chrysler weren't able to increase their market share against imports, they would still sell nearly 600,000 more cars than otherwise, with accompanying benefits for profitability, employment, and pension contributions. The combination of an expanded market for efficient cars and higher gas taxes would give carmakers greater incentive to develop more efficient models.

I admit that this idea is still in the half-baked stage, and I'd welcome suggestions for improving it. However, with all the ideas floating around for what to do with the proceeds of higher gasoline taxes--for which there's more support than there has been for at least a decade--this approach could prove as practical and effective an energy conservation measure as anything else under consideration.

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