Also referred to as “Cash for Clunkers,” H.R. 2751 would establish a new one-year program at the National Highway Traffic Safety Administration under the Department of Transportation (DOT), that will give individuals with older, less fuel efficient cars to a credit worth up to $4,500 towards the purchase of a new car that meets certain fuel efficiency goals. In order to qualify, so-called clunkers must get 18 miles per gallon or less, be manufactured after 1984, be in drivable condition, and be continuously insured to the same owner for at least one year immediately prior to trade-in.
In order to qualify for the voucher, the value of a new car cannot exceed $45,000. The legislation divides new cars and trucks into four categories:
· Cars: If a consumer purchases a new car that gets at least 4 miles per gallon more, they qualify for a $3,500 voucher to reduce the price of the new car. To receive a voucher for $4,500, the new car must have a mileage rating at least 10 mpg higher. No new car purchased can get less than 22 miles per gallon (mpg)
· Light-duty trucks and SUV’s: For owners of light-duty trucks or Sports Utility Vehicles (SUV), to receive a voucher of $3,500 a consumer must purchase a new vehicle rated at least 2 mpg higher and to receive a voucher of $4,500, the new vehicle must get at least 5 mpg more. The minimum fuel economy for a light-duty truck or SUV must be at least 18 mpg.
· Large light-duty trucks: For owners of large light-duty trucks (pick-up trucks and vans weighing between 6,000 and 8,500 pounds), to receive a voucher of $3,500, a consumer must purchase a new truck that gets at least 1 mpg higher. To receive a voucher of $4,500, the new vehicle must get at least 2 mpg more. The minimum fuel economy for a large light-duty truck is at least 15 mpg.
· Work trucks: Owners of “work trucks” (8,500 and 10,000 pounds) can receive a $3,500 voucher for trade-ins of models built before 2002 in the same or lower weight class. Since the EPA does not issue mileage measures for these trucks, supporters of the bill reason that “newer models are cleaner than older models, the age requirement ensures that the trade will improve environmental quality.”
· Another Costly Auto Bailout: The bill authorizes $4 billion of new spending, subject to appropriation. This is on top of the $85 billion American taxpayers have provided to help “restructure” the auto industry. Just today, the auto-parts suppliers plan to ask President Obama’s auto task force for an additional $8 to $10 billion in federal aid. In addition, a similar program instituted in Germany ended up costing three times more than originally anticipated.
· Little Environmental Benefit: H.R. 2751 will most likely not have the anticipated environmental benefits because additional fuel efficiency often leads to more driving and new cars will have little impact on a reduction of overall carbon dioxide emissions, according the Competitive Enterprise Institute.
· Weakens Charitable Giving: Many are concerned that an unintended consequence of the bill is that it will make Americans less likely to donate older automobiles to charities that provide low-income and disabled individuals with affordable automobiles.
· May Disproportionally Help Foreign Auto Companies: With the high fuel efficiency requirements to qualify for the full credit, the bill may actually help foreign auto manufactures, whose fleets typically have smaller, more fuel efficient cars than GM or Chrysler have produced.
· Higher Priced Used Cars: The legislation requires dealers to remove “clunkers” from the market through salvage, reducing the amount of pre-owned supply. Families that still cannot afford a new automobile, even with the voucher, will face rising prices in the used car market during the current recession when affordability is an even greater issue.
· Bureaucratic Leeway: Under the bill, the DOT is required to promulgate many of the regulations to implement the program within 30 days. Many are concerned that this grants too much authority to the executive branch to enact a new $4 billion dollar program.
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