Wednesday, August 5, 2009

Cash for Clunkers - How Far Can it Go?

The U.S. Senate continues debate funding for what appears to be the surprisingly successful 'Cash for Clunkers' stimulus initiative. Stimulus, while evidently not what this program intended to be, has been exactly what it has turned into. It has turned into a cash register ringing success for Ford and other U.S. auto makers who were on life support just a few short months ago. The program has been so effective in fact, that it is about to run out of money after $1 billion has already hit the street in almost a week.

Officially known as the 'Car Allowance Rebate System' or CARS, program provides $3500 - $4500 for trading in a low fuel efficiency car for a higher efficiency new car. "Transportation Secretary Ray LaHood said 157,000 trades had occurred as of Tuesday morning, eating up $664 million of the $1 billion appropriated for the effort."

"More than 80 percent of the vehicles turned in were trucks and sport-utility vehicles, the government said. The top-selling new car is the Ford Focus, followed by the Toyota Corolla, Honda Civic, Toyota Prius and Toyota Camry. The new vehicles on average get 25.4 miles per gallon, compared with an average of 15.8 mpg for the trade-ins."

In the DFW area there are signs that the program is meeting with same success as in the rest of the country. "David Thomas, managing partner of Subaru of Plano, said his dealership sold 15 vehicles this week through the program."

"For us, that's a good chunk of sales in a week," Thomas said. "It's bringing people in who would not normally be in the new-car market. I think it has created a lot of good consumer confidence."

Nevada Senate Majority Leader Harry Reid is pressuring for his colleagues to approve the $2 billion recently okayed by the U.S. House, he has "...warned lawmakers they might miss their August vacation takeoff plans Friday if they don't quickly pass the $2 billion measure."

"If we don't work something out on the cash for clunkers," Reid said from the Senate floor Wednesday morning, he would file motions to close debate. Under Senate procedure, that could mean votes on both Friday and Saturday, when lawmakers would otherwise be scattering for their coveted summer break."

"We all acknowledge there's a significant majority that want to move forward with this legislation," said Reid, D-Nev."

By nearly any stretch of the imagination the program has been successful. Getting gas guzzling emission spewing autos off the road and replacing them with more fuel efficient cars is a win-win on at least a couple of levels, "On average, total gas consumption will drop by 87 million gallons per year, and American consumers will use 22.2 million fewer barrels of foreign crude oil."

"The environmental impact of reduced gas consumption is considerable as well. We estimate that the program will result in about 850,000 fewer tons of CO2 emissions per year (3.4 tons per vehicle annually)."

"This reduction equals more than two-thirds of the annual CO2 emissions linked to household electricity, heating, and waste. CARS is a success — the rare program that boosts U.S. manufacturing while simultaneously improving environmental quality."

I'm glad to see any and all success coming out of this administration (especially since there appear to be a number of critics who suggest that the Obama White House has failed. After all, anyone else could have completely turned an economic meltdown more than 10 years in the making in eight months!). But I do have a few questions:

If consumption on this level is the answer, how do we get citizens with more modest means in the act? After all, working class and poor people are the ones who drive the most fuel inefficient cars. Can we figure out a way to save them cash for oil changes, tires or tune ups? Maybe not in rebates, but cost savings to the businesses that could past on to the consumer?

Secondly, what's the plan for auto industry beyond this? According to Illinois Senator Claire McCaskill, the $2 billion is the second phase of a $4 billion total allocation. With a projected $3 billion gone (pretty quickly I might add) and $1 billion to go - what's next? And if its true that most of the purchases of fuel efficient autos are foreign cars, how soon before the American auto industry gets up to speed?

Finally, this program isn't sustainable and obviously isn't designed to be. Which is fine. But it has a stimulative impact down the industry line. The purchase of domestic goods that are also energy efficient should be considered and possibly a mix of rebates for business and consumers - some tax incentive for Sears, for instance, and tax free holiday for the consumer to buy energy efficient washers and dryers.

What has been clear from the beginning - at least for those not totally blinded by ideology, is that the country would not climb out of this economic hole in a year. What has been equally as clear is that lending institutions, investors and consumers had to have enough confidence to 'get back in the game' as it were.

The sooner we are no longer afraid, the better a lot of things will get.


Anonymous said...

Doesn't someone have to eventually pay for this?

Gerald Britt said...

Well you're right. But remember we're essentially paying for 8-10 years at least, during which the country as a whole was deluded into believing we could enjoy prosperity without paying for it.

Can we preserve the same fiscal policies that got us in trouble? Or can we just 'not spend' our way out of this problem and make the casualties of recovery those hurt most by the economic meltdown?

We were going to pay for the folly of the previous era one way or another. We're paying for the failures of financial misadventure and the cost of recovery. The question is how much valueis in the cost of recovery. We'll have to wait and see...