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Friday, November 13, 2009
Remembering the Roots of 'Cash for Clunkers'
By Darryl R. Isherwood
FOXBusiness
When automobile analysts at Edmunds.com pronounced late last month that the government’s “Cash for Clunkers” program had resulted in only 125,000 additional cars purchased, it put the kibosh on claims that the plan was an unmitigated success that helped jump start the wobbly economy.
The study, which was disputed by both the Obama Administration and the National Automobile Dealers Association, showed that more than 80% of the cars purchased under the $3 billion program would have been bought anyway and the rest cost taxpayers $24,000 per vehicle.
But what was lost in the discussion over its monetary benefits, say economists at Edmunds and elsewhere, is the program's origin. It was never meant to be an economic driver, but rather a way to get gas guzzlers off the road in favor of hybrids and other high-fuel-economy cars. When lobbyists got a hold of the bill it quickly morphed into legislation designed to clear inventory from the floors of struggling auto dealers, while much of the environmental benefit fell by the wayside.
“The turning point was when the president endorsed the legislation as part of the speech where he basically said the initial turnaround plans from GM and Chrysler were not viable,” said Edmunds chief executive Jeremy Anwyl. “I believe in that speech it morphed from its environmental routes.”
Among the additions to the original bill, according to Moody’s Economy managing director Sophia Koropeckyj, was a provision specifically designed to move light trucks like the Ford F-150 and Chevy Silverado. That portion of the bill allowed for the trade in of a light truck with a fuel economy rating of less than 18 miles per gallon for a voucher worth up to $4,500 off a new light truck.
“The domestic manufacturers were saddled with a large inventory of trucks they wanted to unload and through the lobbying efforts they managed to reshape the contours of 'Cash for Clunkers' so those vehicles would qualify,” Koropeckyj said.
Also changed was the required fuel economy for car trade-ins. What started out as a provision requiring a new car to beat required fuel standards by 25% was whittled down to a condition that the new car beat the trade-in’s gas mileage by four miles per gallon to qualify for a $3,500 credit and by 10 miles per gallon to qualify for $4,500.
“The program was first proposed in January and if you look at what was proposed in January and compare it to what was finally voted on it was very different,” she said.
The result of the alterations to the bill, an analysis by the Associated Press found, was that trade-ins of old trucks for new trucks dominated the sales. According to the AP, the most popular trade of all under the plan, which documented about 690,000 car sales, was an old F-150 for a new one. That trade resulted in an improvement in fuel economy of just one to three miles per gallon, the AP found.
In all, the F-150, the Silverado and the Ford Escape SUV were three of the top 10 selling vehicles under the program.
Overall, light truck sales soared in July and August, reaching levels not seen since February 2008. In all, 3,334,000 light trucks were sold in July and 4,063,000 in August. In September, when the "Cash for Clunkers" program wound down, light truck sales dropped to 2,747,600.
Perhaps the best indicator of the program's shortcomings was the reaction of environmental groups, which have long fought for incentives to purchase high-gas-mileage vehicles and more stringent government requirements on gas guzzlers.
Ann Mesnikoff, director of green transportation campaigns for the Sierra Club, said it was unfortunate the program was changed from what was originally a multi-year program targeting the worst cars on the road to a short term deal to stimulate the economy.
“What we said was, ‘if you are using taxpayer dollars, let’s make sure the dollars are used to purchase vehicles that have the most impact on oil consumption,'” she said. “We would have wanted a program that honed in on the most gas consuming vehicles on the road. The idea was to stimulate people to turn in something bad and get something that was on average a much better gas mileage car, but that’s not how this program was structured.”
Still, Mesnikoff said, the program was not entirely unsuccessful from an environmental standpoint. Overall, the average trade in resulted in a nine-mile-per-gallon increase in fuel economy, a huge increase given the questionable environmental incentive.
“What the program showed," Mesnikoff said, “is that when consumers were given the choice, on average, they chose better fuel economy.”
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