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Writ large, old cars are less fuel efficient and more polluting. Getting “clunkers” off the road can lead to many improvements. These improvements can be environmental, economic, energy, and even safety. “Cash for Clunker” programs are, in essence, subsidized scrappage programs that provide government incentives to, hopefully, achieve all of these objectives. Germany’s $3200 per clunker exchanged as part of a new car has received credit for a boost in auto sales, with some 134,000 applicants for the cash in the program’s first five weeks. Notably, as part of the deal, the ‘clunker’ must be at least nine years old and the new car must meet Germany’s strict emissions standards.

If done right, cash for clunker deals can help make real improvements across a wide range of fronts, as mentioned, speeding modernization of auto fleets and introduction of greater efficiency (and other desired auto characteristics, like better safety features and handling) into the buying structure.

Amid the economic crisis, many nations have been looking to similar programs. And “deal” on cash for clunkers has just been announced for the United States.

The one-year plan crafted by members of the U.S. House of Representatives would offer vouchers worth up to $4,500 for owners to replace their less fuel efficient vehicles for models that get better gas mileage. The goal of the “cash for clunkers” legislation is to sell 1 million vehicles. “By stimulating consumer demand for new vehicles, this proposal will directly benefit domestic autoworkers and automotive manufacturers, which have arguably been hardest hit by the current economic downturn,” said Rep. John Dingell, a Michigan Democrat and staunch industry ally.

Economic, environmental, energy, and safety … Seems that Dingell only sees only that first benefit. Rep. Edward J. Markey (D-Mass.), Chairman of the Energy and Environment Subcommittee commented that

“This deal is a triple play for our country,” said Rep. Markey. “Consumers can trade in their old gas-guzzlers for a new, more efficient vehicle, we can reduce our dangerous dependence on imported oil, and help the struggling American auto industry get back on its feet. This deal is about saving American consumers money both at the pump and at the dealership.”

Representative Markey,  compared to Dingell, expresses a far more expansive vision of the proposal’s opportunities.

Chairman Markey suggested that this Cash for Clunkers provides a window on what can be done in the House of Representatives in other domains.

“As with most compromises, this one took a great deal of work and time, and I salute my Colleagues – Ms. Sutton, Mr. Inslee, Mr. Stupak, Mr. Dingell, and of course Chairman Waxman, for all their leadership. I also want to thank the President for his support and White House assistance as we worked through the details.” “This deal also demonstrates how Representatives from both coasts and the Rust Belt can reach agreement on difficult issues, and I expect more of the same as we continue to negotiate comprehensive energy and climate legislation.”

This is somewhat concerning as, sadly, the actual compromise doesn’t look like much of anything to cheer about. It does not look structured to achieve the multi-faceted win-win-win-win elements of a smart Cash for Clunkers.

What is the deal?

“Cash for Clunkers” Agreement

Consumers may trade in their old, gas-guzzling vehicles and receive vouchers worth up to $4,500 to help pay for new, more fuel efficient cars and trucks. The program will be authorized for up to one year and provide for approximately one million new car or truck purchases. The agreement divides these new cars and trucks into four categories. All mpg below relate to the values displayed on new vehicle window stickers.

Passenger Cars: The old vehicle must get less than 18 mpg. New passenger cars with mileage of at least 22 mpg are eligible for vouchers. If the mileage of the new car is at least 4 mpg higher than the old vehicle, the voucher will be worth $3,500. If the mileage of the new car is at least 10 mpg higher than the old vehicle, the voucher will be worth $4,500.

Small Trucks (and SUVs): The old vehicle must get less than 18 mpg. New small trucks or SUVs with mileage of at least 18 mpg are eligible for vouchers. If the mileage of the new truck or SUV is at least 2 mpg higher than the old vehicle, the voucher will be worth $3,500. If the mileage of the new truck or SUV is at least 5 mpg higher than the old vehicle, the voucher will be worth $4,500.

Large Light-Duty Trucks: The old vehicle must get less than 18 mpg. New large trucks (pick-ups and vans weighing between 6,000 and 8,500 pounds) with mileage of at least 15 mpg are eligible for vouchers. If the mileage of the new truck is at least 1 mpg higher than the old truck, the voucher will be worth $3,500. If the mileage of the new truck is at least 2 mpg higher than the old truck, the voucher will be worth $4,500.

Work Trucks: Under the agreement, consumers can trade in a pre-2002 work truck (defined as a pick-up truck or cargo van weighing from 8,500-10,000 pounds) and receive a voucher worth $3,500 for a new work truck in the same or smaller weight class. There will be a finite number of these vouchers based on this vehicle class’s market share. There are no EPA mileage measures for these trucks; however, because newer models are cleaner than older models, the age requirement ensures that the trade will improve environmental quality. Consumers can also “trade down,” receiving a $3,500 voucher for trading in an older work truck and purchasing a pick-up or van weighing between 6,000-8,500 lbs.

Summary of Cash for Clunkers Agreement
	Passenger Car	Small Truck	Large Light-Duty Truck (6,000 – 8,500 pounds)	Work Truck(8,500 – 10,000 pounds)
Minimum Fuel Economy for New Vehicle	22 mpg (EPA combined)	18 mpg (EPA combined)	15 mpg(EPA combined)
$3,500 Voucher	Mileage improvement of at least 4 mpg	Mileage improvement of at least 2 mpg	Mileage improvement of at least 1 mpg, or involving trade-in of a Work Truck	Trade-in must be at least pre-2001
$4,500 Voucher	Mileage improvement of at least 10 mpg	Mileage improvement of at least 5 mpg	Mileage improvement of at least 2 mpg

What is wrong with this? [UPDATE: Still not thrilled with this, but received new information …]

1. It doesn’t even meet CAFE standards for the vehicles. The CAFE standard for passenger vehicles: 27.5 miles per gallon, the Cash for Clunkers ($3500) begins at 22 mpg. The CAFE standard for light trucks: 23.1 mpg and the “compromise”‘s benefit begins at 18 mpg (for light vehicles) and 15 mpg for 6000 to 8500 lbs.  The full ($4500) incentive is achieve by buying vehicles at the CAFE standard. Thus, the compromise does nothing to encourage car buyers to buy truly fuel efficient vehicles. [UPDATE:  Evidently, the plan is CAFE compliant.  There is a difference between EPA window stickers and NHTSA values for mpgs. The agreement keys values to EPA window sticker values (since that is what the consumer will see in the showrooms) which is, as above, in the fact sheet.  Thus,  is indicated on our fact sheet. 27.5 mpg in CAFE/NHTSA world translates to 22 mpg in EPA window sticker land  (27.5*0.8 = 22 mpg). The light truck CAFE std is 23.1 mpg which works out to 18.48 mpg in terms of EPA window stickers. EPA rounds anything below 18.5 down to 18 because they only do window stickers in round #s, hence the EPA window sticker equivalent of 23.1 mpg is 18 mpg. Okay … not as bad as originally suspected, but still not enthused.  Thus, the $3500 comes from meeting EPA window sticker equivalencies to CAFE and the extra $1000 from exceeding it. The ‘trade-in’ vehicle, one would have to assume, would be similarly constrained. (Thus, the 18 mpg limit is the the equivalency of roughly 22.5 mpg in CAFE/NHTSA standards.)

2. There is an equity issue. Those who bought horribly fuel-inefficient vehicles, in the past, will now receive incentives for buying somewhat less fuel inefficient vehicles. Those who bought more reasonably have no such support. Why not, as part of this, offer a ‘cash for clunkers’ for vehicles above a certain age (let’s say Germany’s nine years) where the new car is at least some X% more fuel efficient than the old vehicle’s performance? (How about $3500 for at least 30% fuel efficiency improvement and $4500 for at least 50% fuel efficiency improvements?)

3. There is an interesting other problem.  In essence, the basic model is broken. “MPG” is far less valuable for an approach for a “FeeBate” or gas guzzler turn in then using a “GPM” or gallons per mile. (Difference between 10 and 20 MPG and 20 MPG and 30 MPG same in MPG but not in GPM. 1st is move from .1 to .05 GPM while second is move from .05 to .033 GPM.) GPM is a much faster tool for understanding actual fuel use (and, therefore, CO2 emissions) impacts of differing automotive performace. GPM is a MUCH better measure if we are worrying about incentivizing, somehow, lower fuel use.

Thus, targets are laughably (crying?) too low; there are real equity issues to question; and the basic measures used are open for questioning.

The above are just three examples.

Sadly, not taken was another approach that was on the table (from Senator Schumer and Representative Israel) that would have targeted more serious improvements, requiring the new vehicle to have at least 25 percent better gas mileage than the CAFE standard for that class of car.  Thus, rather than $3500 for a 22 mpg car, the Schumer/Israel approach would have been benefits for a 35 mpg passenger car.

“This deal also demonstrates how Representatives from both coasts and the Rust Belt can reach agreement on difficult issues, and I expect more of the same as we continue to negotiate comprehensive energy and climate legislation.”

Let us hope that negotiations on comprehensive energy and climate legislation don’t result in such watered-down and inadequate compromises. We can, perhaps, live with an inadequate Cash for Clunkers deal. We can’t, almost certainly, look forward to a prosperous future with inadequate energy and climate legislation.

PS:  Additional information. Don’t worry about trying to con a way around this to be able to buy a clunker to then trade in. The trade-in has to be owned for the previous year and be in working condition.