August column: Expanding the "Clunkers" Program

My latest newspaper column is now up at the St. Cloud Times website. Oddly enough, the editorial board chose to write on the same topic today (even more surprisingly our positions aren't really contradictory).

The full text of my column is below; the online archive at the paper is only free for seven days but thanks to the generous support of an anonymous donor this blog is always free.

-Dr. DRL

PS: I'm kidding about the donor, natch.
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August 5, 2009

Times Writers Group: Raise standards, renew clunkers

By Derek Larson

The “cash for clunkers” program was intended to jump-start the sagging auto industry and provide consumers with an incentive to purchase more fuel-efficient vehicles.

A victim of its own success, the program’s $1 billion was exhausted in about a week. Congress is debating whether to fund an extension, which it should, but with changes to make it more effective and fair.

As consumers rushed last week to take advantage of the deal, auto dealers struggled with a massive backlog in the federal system for reimbursement.

Though no complete results have been published, The Associated Press reported the Obama administration claiming that of the first 80,000 transactions, the average efficiency of the clunker was 15.8 mpg and the new vehicle 25.4 mpg. So on its face the program clearly succeeded in stimulating sales and boosting average fuel efficiency of the replacement vehicles.

But before Congress appropriates additional funding, the law should be tweaked to favor more efficient vehicles and to open it up to more consumers. Under the program a car or truck must have an EPA efficiency rating of 18 mpg or less to qualify, and the replacement vehicle must exceed that rating by a minimum of 2 mpg for light trucks or 4 mpg for cars.

That threshold is ridiculously low. A person could trade a 1994 Suburban in on a 2010 Hummer H3 and receive a $3,500 subsidy for achieving a 2 mpg increase — all the way to 14 mpg! A more sensible approach would be to base the incentive on the percentage increase in fuel efficiency achieved, with a minimum increase of 30 percent to qualify for $2,000 and the subsidy increasing proportionally to 70 percent, above which all trades would qualify for $4,500.

This would prevent the public funding more gas hogs while still allowing those who needed trucks or SUVs to use the program. Those who chose more efficient upgrade paths, however, would be rewarded with proportionally larger subsidies.

The second change should be to eliminate the 18 mpg cap for clunkers. If a consumer wants to trade a car that gets 22 mpg for one that gets 28.6 mpg (receiving $2,000 for meeting the 30 percent minimum) the goals of the program would still be met. To receive the maximum benefit ($4,500 paid at 70 percent or more) the replacement car would have to reach 37.4 mpg.

Third, the program should be opened to late-model used cars under similar terms. While such sales would not address the problem of stalled domestic production, they would still have a positive ripple effect in the local economy. Moreover, they would open the program to participation from those who simply cannot afford the payments on a new car, the cheapest of which are still running about $8,000 after the clunker deal. Moving less affluent families into safer, more efficient cars is also a worthy goal, even if those cars are used.

Once these changes are made Congress should consider appropriating several billion dollars to fund the clunkers program through the end of the year. It’s obviously working. Demand for new cars — and the desire for a deal — is strong. We can track and easily identify the impacts of the program, which will yield not only economic benefits but an automobile fleet that is more efficient and safer than the one it replaces.

The program empowers consumers, is market-based and benefits business — solid conservative principles. But it’s also transparent, good for the environment and, with the changes noted above, could be accessible for the working class — things liberals demand.

Of all the billions spent on bailouts and stimulus schemes since last fall, the clunkers program is the one that has actually worked as designed, quickly, and had a direct impact on Main Street. Keep it going and the echoes might make it to Wall Street as well.

This is the opinion of Derek Larson, who teaches history and environmental studies at The College of St. Benedict/St. John’s University. He welcomes comments at dereklarson@charter.net. His column is published the first Wednesday of the month.