Friday, July 31, 2009

Cash for Clunkers: Next Entitlement Program?

This morning the “Cash for Clunkers” program administered by the National Highway Traffic Safety Administration (NHTSA) appears to have run its course. Per the Car Allowance Rebate System (CARS) “is a $1 billion government program that helps consumers buy or lease a more environmentally-friendly vehicle from a participating dealer when they trade in a less fuel-efficient car or truck. The program is designed to energize the economy; boost auto sales and put safer, cleaner and more fuel-efficient vehicles on the nation’s roadways.”

The site offers a Consumer Bill of Rights as well:
  • Qualified consumers may participate in the CARS Program between July 1, 2009 and November 1, 2009 or when authorized funds are no longer available.
  • Qualified consumers will receive a credit of $3,500 or $4,500 for an eligible trade-in toward the purchase of lease of an approved vehicle under CARS Program.
  • Qualified consumers will receive the $3,500 or $4,500 credit at the time the purchase their new vehicle.
  • Dealers must provide consumers with any other advertised rebates or discounts in addition to the credit they receive through the CARS Program.
  • Consumers should expect to conduct their deals at their dealership of choice, not on the Internet.
  • Consumers should expect the dealers to provide their best estimate of the scrap value for their eligible trade-in vehicle. Dealers are allowed to deduct $50 from this value for their administrative costs.
  • Consumers should expect that all information collected through the CARS Program will be kept confidential. Social Security numbers are not required for a CARS transaction.

The Program is out of money and the Obama administration is looking to extend the program due to the overwhelming response. The idea and concept put forth in this program is valiant but it does not go far enough to achieve its goal; helping the environment. Here is the CARS grid:

Summary of Car Allowance Rebate System - Cash for Clunkers Voucher Qualifications

Passenger Car
22 mpg - Min. Fuel Economy for New Vehicle
Mileage improvement of at least 4 mpg = $3500 Voucher
Mileage improvement of at least 10 mpg = $4500 Voucher

Light-Duty Truck
18 mpg - Min. Fuel Economy for New Vehicle
Mileage improvement of at least 2 mpg = $3500 Voucher
Mileage improvement of at least 5 mpg = $4500 Voucher

Large Light-Duty Trucks
15 mpg - Min. Fuel Economy for New Vehicle
Mileage improvement of at least 1 mpg or trade-in of a work truck = $3500 Voucher
Mileage improvement of at least 2 mpg = $4500 Voucher

Does this program really achieve the goal of helping the environment? To participate in the program one only needs to improve gas mileage by 1 to 4 miles depending on the vehicle type. How does that help the environment? Again Government has proved that they cannot put forth a program that is meant to meet its goals. While CARS is moving new cars off the lots, is it really assisting the economy as was another goal?

It is being reported that 23,000 dealers are participating and have exceeded the 250,000 vehicles. Rep. Edward Markey (D-Mass) who crafted the CARS legislation plans exerts efforts to extend the program “until it reaches its goal of helping consumers take 1 million gas guzzlers off the road.” If that is the case, why did they only fund it with $1 billion? 1 million cars at a minimum of a $3500 rebate equates to $3,500,000,000. Now I am not a math major but I am smart enough to work an abacus and something does not equate here. That is just one short coming by Rep. Markey. The other part is his notion of taking “gas guzzlers” off the road.

Let’s say one has a 2000 Ford F150 that is a 4-speed automatic overdrive, rear-wheel drive and a 4.6L 200 hp V8 and wants to upgrade to a 2009 model. To determine if this qualifies, I went to to see what my estimated new EPA MPG is for my 2000 Ford F150. According to the website the new mpg is 16 mpg for the 2000 model. While the same 2009 model will not qualify but if one wants to go upgrade from the 4-speed to the 6-speed, one can make the trade. The 2009 Ford F150 6-speed gets a mpg rating of 17 mpg thus qualifies one for a $3500 rebate.

So how does this help the environment? While the CARS program in concept makes sense but in reality government has proven again that it is incapable of putting tax dollars into the economy in an intelligent way. After each purchase the car dealer is to register the transaction with the NHTSA but that is not taking place. Evidence of car dealers not doing their due diligence is the gluttony of undocumented “Cash for Clunkers” cars that are sitting on their lots and the cries for more money for the CARS program.

The CARS program is not an entitlement. It clearly stated that $1 billion will be set aside and its first come first serve. Just as we saw with the housing market with subprime loans via Fannie Mae and Freddie Mac, we are seeing the greed of another industry take place. As I said the concept behind the CARS program is noble but the execution has been less than stellar.

Since Congress was short sighted and didn’t read the Stimulus Bill because Democrats knew if the bill was vetted programs like CARS would not have been approved. I wonder how many other programs will meet this fate from the ramming through of the $787 billion stimulus bill. President Obama is looking to increase fuel efficiency, by 2012, to 27.5 mpg for cars and 24 mpg for light trucks. That being said, why does the CARS program not push harder toward that goal?

I understand that I am just scratching the surface on the failures of the CARS program and others will say that it is good. The trouble is that by Congress considering more tax payers dollars toward the program it only enables the concept of entitlement and further government bailouts. I leave this topic, for now, with this question: How is the underfunding and potential bailout any different then what took place with the Fannie Mae and Freddie Mac and when will Americans wake up to understand that government intervention into the free market is not always the answer?