Cash For Clunkers Legislation Clears Major Hurdle in Washington, D.C.

Cash For Clunkers Legislation Clears Major Hurdle in Washington, D.C.

President Obama and House Democrats today reached an agreement on cash for clunkers legislation that would pay consumers as much as $4,500 to scrap their old cars and trucks and replace them with greener, more fuel-efficient vehicles. The proposal that still must be approved by the full Congress calls for a year-long program that could cover about one million vehicles.

We've not yet seen the details, but Uncle Sam seems to have struck a good deal for the environment, consumers and the automobile industry. Negotiators seem to have avoided the real possibility of turning the legislation into a disruptive program that would have required owners to cash out their old cars and trucks, or require the complete demolition of clunkers.

That kind of legislation would have been unfair to collectors, enthusiasts and low-income car owners who don't want to part with their aging vehicles. Mandating the complete demolition of older vehicles would have resulted in seat frames and other perfectly good car parts being kept from the resale market.

Similar programs have been introduced by state air quality regulators in California and elsewhere, to varying degrees of success. So we're hopeful that Washington, D.C. will end up getting this program right.

As for the anticipated economic stimulus?

"It's not the best long-term business solution, but it will help spur new car sales and it has some good environmental benefits," said Jesse Toprak, Edmunds.com's senior industry analyst. "We've looked previously at both House versions and don't see much difference in impact, so the compromise should mean a minimum of half a million new sales during the rest of 2009," he said, adding that some more optimistic forecasts have put that number as high as one million new sales.
 
"A similar program in Germany did see a gain of a million sales, so that's possible here,"  Toprak said. "It all depends on how responsive customers are. There's a lot of pent-up demand for new vehicles."

The program that is based upon H.R. 1550 (introduced by U.S. Rep. Betty Sutton of Ohio) and H.R. 520 (introduced by U.S. Rep. Jay Insee of Washington) will be divided into four parts. Here is the plan as described by the House Committee on Energy and Commerce:

Passenger Cars: Old vehicles must get less than 18 miles per gallon. New cars must get at least 22 mpg to qualify for vouchers. If the new car's mileage is at least four mpg higher than the old vehicle's mileage, the voucher will be worth $3,500. If the mileage is at least 10 mpg better, the voucher's value will jump to $4,500.

Light-Duty Trucks: Old vehicles must get less than 18 mpg. New light trucks or SUVs with mileage of at least 18 mpg are eligible for vouchers. If the new truck or SUV's mileage is at least two mpg higher than the old truck, the voucher will be worth $3,500. The voucher will be worth $4,500 if the new truck or SUV gets at least five mpg higher than the old truck.

Large Light-Duty Trucks: New pick-up trucks and vans weighing between 6,000 and 8,500 pounds with mileage of at least 15 mpg are eligible for vouchers. If the mileage of the new truck is at least one mpg higher than the old truck, the voucher will be worth $3,500. If the new truck's mileage is at least two mpg higher than the old truck, the voucher will be worth $4,500.

Work Trucks: Consumers can trade in pre-2002 work trucks (defined as pick-up trucks or cargo vans weighing from 8,500 to 10,000 pounds) and receive a voucher worth $3,500 for a new work truck in the same or smaller weight class. The committee noted that "there are no EPA mileage measures for these trucks; however, because newer models are cleaner than older models, the age requirement ensures that the trade will improve environmental quality." Consumers can also "trade down" and receive a $3,500 voucher for trading in an older work truck and purchasing a smaller, light-duty truck weighing from 6,000 to 8,500 pounds.

It took Congressional Democrats and the White House more than a month to come to terms on the deal that is designed to support the financially troubled domestic automobile industry and clean up the environment by getting older, dirtier vehcles off of the roads. The negotiations centered on "maximizing the benefit to carmakers while still preserving the environmental beneifts of the 'cash for clunkers' program," according to Environment & Energy Daily (subscription required.)

"It's a good agreement," Rep. John Dingell (D-Mich.), the former chairman of the Energy and Commerce Committee, told reporters after today's meeting at the White House. "It means sales of autos. It means fuel efficiency. And it means progress, both legislatively and in terms of saving energy."

Not surprisingly, the Specialty Equipment Market Association, which steadfastly has opposed the concept, today voiced "disappointment" that Congressional Democrats have reached agreement with the White House.

"Scrappage programs actually would deny vouchers to the majority of people who may want to buy a new car but don't have an eligible older car to trade," SEMA said in a statement. "Instead, these programs will be misused by those who own two or three older cars and seek to take advantage of the taxpayer give-away. Many of these cars aren't frequently driven, if at all, so destroying them will not clean the nation's air or make us less dependent on foreign oil."

Greg Johnson, Contributor

Greg Johnson: