Marathon Pundit: Cash for clunkers: Not so green

Tuesday, August 04, 2009

Cash for clunkers: Not so green

Cash for clunkers is a cash sinkhole. Why not $4,500 federal subsidies for every major purchase? Well, eventually there is no money left.

But at least it helps cut the use of gasoline by taking all of those gas guzzlers off of the road and replacing them with lean, mean, green machines.

Actually, as Cameron Scott reports in the San Francisco Chronicle, cash for clunkers doesn't really do that.

The principal behind the Cash for Clunkers program that has proven so catastrophically popular is that it allows people with gas-guzzling and polluting old cars to trade them in for more fuel efficient vehicles.

But what does that really mean? To qualify as a clunker, a vehicle must get 18 mpg or less (combined EPA ratings). ~~And the new vehicle must simply get better than that.~~ Correction: The new vehicle must get just 22 mpg. As a result, Reuters estimates that the program, even if it is extended, will reduce our national gas consumption by less than a quarter of a percent. (H/T Streetsblog)

Legislators could easily have required that new cars get better than, say 25 mpg combined—which isn't especially ambitious (my '94 Civic got 32 mpg in the city). Why didn't they? Because American cars are clunkers. The government requires fleetwide average fuel efficiency of 2009 American vehicles to be just 23 mpg—and Detroit fought that like hell. In Europe the number is 45, and it's even higher in Japan, leading Japanese cars to trounce their American counterparts class by class in fuel efficiency. Requiring clunkers to be traded for truly efficient vehicles, then, would have provided stimulus for foreign companies, the argument went.

But there are some compromises that could have made sense: Providing cash for Americans who purchased a limited group of fuel-efficient American-made vehicles, such as the Ford Fusion or the Ford Escape hybrids. This would have brought cries of protectionism, but it also would have stimulated American automakers to produce better vehicles. Alternately, the amount of cash could have been pegged to the increase in fuel efficiency.