It's no secret that one of the biggest reasons the U.S. auto industry is teetering on collapse is that, quite simply, Americans have stopped buying cars. U.S. auto sales were down 37% in March from 2008, the latest in a nearly unbroken year-and-a-half streak of falling sales. And if the cratered economy is the main culprit behind backed-up inventory at U.S. car dealers, another is that American automakers have failed to produce the more fuel-efficient vehicles that gas-price-conscious car buyers are beginning to demand. As a result, the U.S. still sends hundreds of billions of dollars overseas for oil and adds ever more greenhouse-gas pollution into the atmosphere.
Now what if there were a way to tackle both these problems with one policy: to stimulate demand for American cars while making the U.S. auto fleet cleaner, greener and more efficient? It sounds like the kind of slick two-for-one pitch you might hear from a used-car salesman, but that's exactly what proponents of a "cash for clunkers" program are promising. (See the 50 worst cars of all time.)
In its broad outlines, the prospective policy for which a number of proposals have been put forward in Congress would offer Americans cash rebates of up to several thousand dollars if they traded in an old, inefficient car for a new, greener one. The ailing U.S. automakers would receive a shot in the arm potentially worth up to 2 million additional sales a year while polluting cars would be taken off the road and replaced with more efficient ones. (All cash-for-clunkers programs require the old cars to be scrapped rather than resold.) "There are significant environmental advantages and substantive benefits for the auto sector," says Benjamin Goldstein, a policy analyst for left-leaning think tank the Center for American Progress. "This goes right for the source of the problem, for vehicles sales and for oil use."
President Barack Obama has signaled that he would favor a cash-for-clunkers-style program, saying in a speech on March 30 that he wanted to work with Congress on finding money for rebates in existing stimulus spending. And similar programs already in place in Germany and other European countries have proved very successful thanks to continental Europe's cash-for-clunkers plan, analysts say that European car sales are now running at more than 13 million vehicles a year, up from an 11 million pace at the start of the year. "It has been pretty successful so far in Germany," says John Wolkonowicz, senior automotive analyst for the research firm IHS Global Insight.
But is cash-for-clunkers really two-for-one? That depends. There are currently two main bills in the House and Senate, which, according to greens, are not created equal. One, sponsored by Democratic Ohio Representative Betty Sutton, allows any car from model year 2000 or earlier to be traded in, without any restriction on fuel economy. In return, car buyers will get $4,000 if they buy a new U.S. car that gets a minimum mileage of 27 m.p.g. and $5,000 if they buy a U.S. car with at least 30 m.p.g. Crucially, the new cars have to be made in the U.S. foreign brands can qualify, but only if they're manufactured on U.S. soil, which would disqualify super-efficient vehicles like Toyota's Prius hybrid, made only in Japan. (See the history of the electric car.)
Notwithstanding the fact that the "buy American" provision in Sutton's bill which has the support of U.S. automakers and the United Auto Workers union might violate free-trade agreements if the bill is ever passed, greens are more worried about its extremely low standards. Refusing to put a mileage requirement on clunkers means that even relatively efficient cars could be traded in, provided they're at least a decade old. And putting the minimum standard for new cars at 27 m.p.g. means that more than half the cars already in the U.S. fleet would qualify, since the existing federal fuel-efficiency standard is 27.5 m.p.g. for cars. Given that it takes a lot of energy to make a car, junking an old one in favor of a brand-new vehicle that is only marginally more efficient would barely produce any overall oil savings. "This bill would pay to get new cars on the road," says Eli Hopson, the Washington representative for clean vehicles at the Union of Concerned Scientists. "But it's not helping to improve fuel efficiency."
Far better for greens would be the other major cash-for-clunkers bill circulating in Congress, this one co-sponsored by Democratic Representative Steve Israel and Democratic Senators Charles Schumer and Dianne Feinstein. Their bill would allow the junking of any vehicle that's more than three years old, provided its fuel economy comes in at less than 18 m.p.g. Any new car would need to have a fuel economy at least 25% better than the clunker to qualify and rebates would reach up to $4,000. (All auto brands would qualify, foreign or domestic.) A 25% improvement would be enough to make buying a new car a good deal for the planet as well as Detroit. "If the public is going to subsidize these auto purchases, then the public should get a benefit through oil savings and a reduction in greenhouse gases," says Brian Siu, an energy policy analyst with the Natural Resources Defense Council's air and energy program.
Whichever bill is chosen and others are being circulated as well a successful cash-for-clunkers program wouldn't be cheap. Germany's program may end up costing the government some $6 billion, three times the initial price tag. Since Obama has said that money for the cash-for-clunkers program needs to come out of existing stimulus spending, that might take some creative accounting. But a cash-for-clunkers program, whatever its environmental benefits, would provide the government with a way to aid the domestic auto industry without giving Detroit any more direct handouts. "There's a lot of justifiable taxpayer reluctance to keep helping the auto industry," says Goldstein of the Center for American Progress. "Politically this is a viable alternative to sending them additional loan money."
Not every analyst is convinced that a $4,000 or $5,000 rebate would convince suddenly spendthrift U.S. consumers to buy a new car especially the sort of customers who would own a clunker in the first place. "Either this program won't make them buy, or they're just poor," says Wolkonowicz. But a cash-for-clunkers deal with tough enough fuel standards would at least be a way to throw Detroit another lifeline without sinking the planet even as Washington seeds longer-term demand for more-efficient vehicles. The key, like any used car contact, is to check the fine print.