Cash for clunkers

http://www.cars.gov/
http://www.kbb.com/kbb/cash-for-clunkers/list.aspx
http://www.npr.org/templates/story/story.php?storyId=111456626&ft=1&f=1006

I question the necessity and execution of this program. Yes it appears to be a success when the $1B CARS fund has nearly depleted after a week of enrollment, and the House quickly passed another $2B replenishment. Assuming that the average rebate is $4,000, that means 250,000 new car sales were subsidized by CARS (assuming no overhead and clunker junking costs). But what is the purpose of the program? A) to get surplus new vehicles off dealer lots, B) to make America's auto fleet less polluting, and/or C) to help consumers fight the recession with increased spending and enjoy the quality-of-life benefits of a new car? And shouldn't this program accomplish those goals fairly and efficiently?

Well let's look at goal A. If Uncle Sam wanted to incentivize Americans to buy more cars (and more fuel-efficient cars... tie-in to goal B), why not just give a tax rebate for buying high-MPG vehicles? Hybrids already have a tax credit, and under the Bush admin. they even gave polluting mega-trucks and SUVs up to a $12k tax break if the vehicle was used for a small business (an easily abused condition). Efficient vehicles are already cheaper than gas-guzzlers, and it's easier to get a great deal for a new car these days, but maybe another $1-2k off the sticker price would help consumers do the right thing. Because if the Feds are essentially rewarding consumers for making poor decisions in the past, that is no different than the bank and mortgage bailouts to irresponsible lenders/borrowers.

So for goal B - will this program make America's auto fleet a bit less polluting? Hard to say but doubtful. There are over 140M autos in the US (1 car for ever 2.5 people, so even if CARS facilitates 500k trade-ins, that will raise our overall fleet MPG under 0.1%). To qualify for the program, clunkers must achieve 10 MPG (or 4 MPG for "work trucks") according to Kelly Blue Book. And to get a full rebate, you must buy a new car that is 10 MPG more efficient. So if I trade in a guzzler 9 MPG Suburban, that means I can buy another medium-sized SUV that gets 19 MPG, and Uncle Sam takes $4,500 off my bill. Why? We know that SUVs not only consume more fuel, but their emissions are dirtier and some studies suggest they are more accident-prone (maybe more a function of the SUV-driver demographic than the actual vehicle class, but still). SUVs may hurt Americans more than cigarettes, yet we tax the hell out of the latter and subsidize the former? So this program hardly discourages the purchase of low-MPG vehicles, which is why the Senate may re-think the weak MPG rules attached to the addition $2B in funding that the House passed. One may still buy a new car that is only 3-5 MPG better than the trade-in clunker and receive $3,500 credit, which is 78% of the maximum rebate. So I can trade in my old Suburban for a slightly smaller Suburban, and somehow that makes me worthy of $3,500 from the taxpayers?

It doesn't make sense. If anything, you should receive a smaller rebate proportional to how low your trade-in vehicle MPG is. If one trades in an efficient but old Civic for a new Civic, that is the "model consumer" the government should reward, not the person trading in an old truck for a new one. And in order to achieve the maximum effect, the trade-in vehicle should be the person's primary or secondary car. If many of these clunkers are a family's "forgotten" fifth car that sits in the driveway and maybe gets 1,000 miles a year, then by removing it from circulation we haven't really helped fight the CO2 problem, because even badly polluting vehicles don't pollute much if they're not driven. So again, the government is subsidizing a family's poor consumer decision and giving them a free pass to the junkyard. And speaking of junking these clunkers - it's not cheap to safely dispose of a junked car. Parts must be salvaged, toxic components must be safely disposed of, and the bulk metal must be compressed or shredded. Or they'll just end up in a Third World nation with laxed environmental laws, like much of the West's consumer trash.

And lastly for goal C - how will this program stimulate the economy? If anything, it looks like another cash infusion to auto companies. Why not just cut a check to the Big 3 and call it even? Because the administrative costs of running this program are not trivial either. "Cash for appliances" seems just as appropriate to meet goals A-C, if not moreso since appliances are cheaper so we can reach more people. As far as I know, there are no income eligibility requirements for CARS. So Warren Buffet and I are equal in the program's eyes. I know it's too early, but I would like to see some demographic data for those who used the CARS program. I highly doubt many of them are "needy" in this recession. Was there even an effort to spread awareness of this program to lower-income or non-English speaking communities? I know CARS is not a charity (it seems DC is mainly interested in helping the rich and irresponsible during this recession), but still. Why not cap eligibility at $150k household income? Otherwise we are giving people who were going to buy a new car anyway a pointless subsidy. Or you have the "cheapskate rich" who are financially able to buy a new car any time they want, but are just waititng for an opportunity like this for Uncle Sam to save them money. Other Americans who unfortunately must rely on their clunker to get to work and pick up the kids from school every day may not be able to afford a newer, better, more efficient vehicle, even with an extra $4,500.

So is this program fair, effective, green, and edifying for America? Possibly but I have my doubts.