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Saturday, April 25, 2009

Comparing The Cash For Clunkers Bills

There are two competing "cash for clunkers" bills in the House.  One is more left-leaning, HR520, and the other is more populist, HR1550.  Both bills aim to do the same thing: encourage people to scrap older cars to buy new ones.  But they are very different in how they do so. 

In fine high school government class style, I will now contrast the two bills.

Key Differences:
Definition of a "high polluting" or "high consumption" automobile.
HR520: Average (city+highway weighted average) fuel economy of <18mpg.
HR1550: A car built before 2001.

Definition of a "fuel efficient automobile"
HR520: 2003MY or later, <$45,000 price, Tier II Bin 1-5 EPA emissions, 
25% better fuel economy than current or future CAFE standards.
HR1550: 2009-2011MY, <$35,000 price, Tier II Bin 5 emissions.

Voucher Amount:
HR520: New car voucher: $4,500 for 7 year old or newer car, 
$3,000 for 8-10 year old car, $2,500 for 11+ year old car. 
Used car voucher: $3,000, $2,000, $1500.
HR1550: $4,000 for US assembled 27 hwy MPG+, North America 30 hwy MPG+, 
or US light truck 24 hwy MPG+; $5,000 for US assembled 30 hwy MPG+, 
or US assembled work truck (registered commercial); 
$3000 for a NA assembled light truck with 24 hwy MPG+

Both bills require the old vehicle to be destroyed.  Parts other than "engine block and drivetrain" can be recycled, but the titled body, engine block and transmission must be destroyed.

HR520 is obviously geared towards fuel economy.  It doesn't care what kind of car you buy, as long as it is 25% better than the current requirements--which will greatly limit what kind of vehicles would qualify.  It also won't help you unless you are driving something which is relatively thirsty.  A typical case might be a trade-in of an old SUV or pickup truck.  

For example, the current standard is 27.5MPG (combined) for cars and 23.1MPG for trucks, so to qualify for the HR520 voucher now you would have to buy a passenger car that gets at least 34.4MPG or a light truck that gets at least 28.9MPG (combined).  The list of vehicles that would currently qualify is short: small and mid-sized hybrids such as Prius and Fusion, Smart, VW TDI, Toyota Yaris, Mini, Ford Escape Hybrid.  HR520 may give more benefit as time goes on, because more fuel efficient cars will appear, ahead of the tougher CAFE standards.

I think HR520 would have an unintended side effect of boosting the residual values of used large engined vehicles.  Cars that would have been worth $700 (like this one) would be worth much more, because they could be bought and titled just to qualify for the voucher.
HR1550 is designed to be more of a short term shot in the arm to the auto industry.  It very broadly defines what a "polluting" and "clean" vehicle is, because it isn't really about being green. It is only in force for several years, and heavily favors U.S. assembled or NAFTA vehicles.  This favoritism could cause trouble at the WTO, although it does include transplants such as Honda who have plants in the U.S.  

I prefer HR1550, because it would be better for the Detroit 3 in the short term.

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