Congress reaches compromise on cash for clunkers bill

After much debate, the Congress has devised a cash-for-clunkers deal that would grant vouchers to up to 1 million new-car buyers who trade in an old car to be scrapped that gets 18 mpg or less, if the new car gets at least 22 mpg. Those who buy cars that are EPA-rated for more than 28 mpg would get a $4,500 voucher.

The program is modeled on a similar law in Germany which has been credited with boosting car sales there.

According to the Detroit Free Press, the measure does not contain any provision requiring the cars to be made in the United States. That measure had been controversial with import-branded automakers, and international groups claimed it was a violation of free trade agreements.

The fuel economy provision would both aid the environment and improve national fuel independence. Some groups have noted that accelerating the production of new cars, and thereby replacing older models before their time, will cause more environmental damage than driving less fuel-efficient older cars does, while others voices have called for even more aggressive mileage figures for new models. The vouchers could also be used for public transportation.

Here’s a chart that lays out the details of the program:

 

Cash for clunkers agreement

	Passenger car light-duty	Small truck	Large light-duty truck (6,000 – 8,500 pounds)
Minimum fuel economy for a 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 trade-in of a work truck.*
$4,500 voucher	Mileage improvement of at least 10 mpg	Mileage improvement of at least 5 mpg	Mileage improvement of at least 2 mpg

*Trade-in must be at least pre-2001.

Plus, getting older cars off the roads will get more people into cars with more safety equipment; older cars typically do not have stability or traction control; side- and head-protecting air bags; or even anti-lock brakes.

We think the proposal is a good start because it aims to take less efficient, and less environmentally friendly, vehicles off the road, while promising stimulus to the auto industry.

—Eric Evarts

Update: President Obama signs Cash for Clunkers bill.
For more information on the Cash for clunkers program, see our guide.

Comments

[toronado455]

While this program might stimulate new car sales, it is not as environmentally friendly as it might seem to be, especially when you consider the resources needed to put a new car on the road that only improves fuel economy by 1-5 MPG over the car it replaces.

But the worst thing about this bill is that it calls for the crushing of old cars instead of dismantling them so that the good parts can be saved and reused. What a huge waste!

[Fred]

There are precious few "cars" that get less than a combined 18 mpg. My daughter's Grand Marquis gets 18 exactly (according to http://www.fueleconomy.gov), so she loses out.

This is more of plan that gets old SUVs and trucks off the road.

[Cale]

You make some good points but this legislation also rewards the owners of larger and more polluting cars. I don't like the idea of my tax dollars going to Expedition owners. Why should I reward them?

I've got an idea, why don't we levy a tax on owners of cars that are rated less than 18mpg and give the money to the auto manufacturers to develop more fuel efficient cars?

[Ben]

Does this mean that my car, a 1994 Thunderbird LX that gets an EPA (at the time estimated) of 19 mpg, and with the new standards gets 18.5, is not eligible for the credit? Seems to me like this will only benefit people who were rich enough to afford to buy the big SUV's that caused such horrendous problems with gas prices in the first place. People like me who need a newer car, could really use the credit to get something small and fuel efficient, will not be able to because I could never afford the big fuel guzzlers of the past. It's not like I am far off the mark either, but the tax breaks only ever help the wealthy.

[Stuart Bratesman]

I support the concept of the new compromise versions of House and Senate cash for clunkers bills. However, the qualifying criteria and award schedule have been designed in ways that are far from rational or intelligent.

Qualifying Criteria for Passenger Cars

The less-than-18-mpg cut-off point for passenger cars sounds reasonable, but it ends up rewarding car buyers who achieve modest gains in fuel efficiency while denying vouchers to other car buyers who achieve much greater gains in fuel efficiency. To illustrate by example:

Buyer 1: Buyer 1 qualifies for a $3,500 voucher by scraping a car that gets 17 mpg and buying a new car that does 4 mpg better at an EPA rated 21 mpg, resulting in a 24% increase in EPA combined miles per gallon.

Buyer 2: Buyer 2 qualifies for the full $4,500 voucher by scraping the same model 17 mpg car, and buying a new car which gets 10 more miles per gallon at 27 mpg. Buyer 2 is rewarded for achieving a 59% increase in mpg.

Buyer 3: Buyer 3 drives an old car that gets the same 21 mpg as the new car just purchased by Buyer 1. Buyer 2 wants to turn in the old car for an American-made Ford Fusion Hybrid that gets an EPA combined 39 mpg. Buyer 3's purchase would achieve an 86% improvement in miles per gallon, but Buyer 3 gets no voucher because the old car is 4 mpg above the less-than-18-mpg qualifying threshold.

Buyer 1 24% improvement in mpg $3,500 voucher
Buyer 2 56% improvement in mpg $4,500 voucher
Buyer 3 86% improvement in mpg no voucher

If Buyer 3 were to buy the new 2010 Prius rated at 50 mpg, that would mean a 138% increase in mpg, but still no voucher.

Award Schedule for Passenger Cars

The bill's design at the top end is equally irrational. Although President Obama has set a national goal to encourage the domestic production of hybrid vehicles, the compromise bill fails to provide car buyers any incentive at all to choose a 35-mpg-to-50-mpg hybrid instead of a traditional gas-powered car in the 27-to-30-mpg range. The bill caps the maximum reward at 27 mpg (17 mpg + 10 mpg). Qualifying car buyers do not get a penny more for choosing any car that gets above 27 mpg.

How can the bill be fixed?

Instead of setting an arbitrary cut-off point for qualifying clunkers, the bill should reward any car buyer who improves their EPA combine gas mileage by a certain percentage. A 25% improvement in the EPA combined rating might be reasonable.

When it comes to setting the dollar amount of the voucher, the reward should be at least roughly proportional to the percentage of improvement, with no cut-off point at the high-end. The voucher could either be calculated at X number of dollars for every 1% of improvement, or set the scale at increments of 5%. Either way, you would achieve greater national fuel savings and greater pollution reduction for every federal dollar spent.

[Ryan Beymer]

Thanks for getting this out there. This bill was one of the reasons I was waiting on buying a vehicle.

[MSB]

My 18 year old honda civic which burns 1 quart of oil every 300 miles is not eligible because it gets nearly the same EPA mileage as the 2009 Honda Fit, but the old car spews so much pollution, it really should be taken off the road. I just don't get it.

[Fred]

Cool, I'm going to buy an old POS for 100 dollars, and trade it in.

[david]

As others pointed out, this isn't a perfect bill. I think rather than an absolute amount (trade in 18 mph for 28 mph, etc), program should have been based on relative improvements.

[David Brodbeck]

@toronado455: I suspect that's by design. They don't want the parts used to keep other old, polluting cars on the road.

[RUBBA]

I agree with the commentor above. My 1986 Ford wouldn't be eligible for a voucher because in 1986 it got 18 mpg's. Dopey legislation!

[Paul]

I agree with Stuart. If there has to be a voucher, it makes the most sense to base the voucher on the percent MPG improvement.
.
However, it only makes sense to take advantage of the voucher if your old car is valued less as a trade-in than the voucher amount. Remember, this car is getting scrapped...The dealer is not going to give you a trade-in value for it also. So all those folks talking about how "the rich" are going to benefit most from this program...just know that "the rich" you are speaking of own cars that are worth less than $3500-$4500.
.
So the question becomes: Why is the government encouraging folks who are less well off (own cars worth less than $3500 - $4500) to buy brand new cars? The less well off are better served by purchasing a recent pre-owned car to replace their clunker. I think we should scrap this program.

[Jack Taylor]

Seems strange that my two old Maximas with a combined total mileage of about 450,000 will not qulaify. From 1988 and 1993, and both were rated over 18 mpg. Too bad I did not buy a poorily designed American Car. Why not do with any car over 10 or 12 years old (more similar to Germany I think) and stretch the mileage on the new car to over 30 or even a hybrid. Have some real impact. Oh well. My old cars are up for inspection and I will probably get one to pass in CA and keep it on the road for a few more years. A waste of a lot of money that could impact the system more seems to me. Seems polution levels should me more important than mileage. Oh well.

[Josh Ralya]

How do you cash in on this? With an old truck it would be great to upgrade! Thanks!

[Stan]

Detroit is behind this. Clunkers getting less than 18 mpg are all Big Three. Detroit believe their owners will buy Big Three again.

[Allen]

If the Big Three is so bad, show me a CAR made by them that gets less than 18mpg in the last 20-25 years? If Toyota is so green then why are they making big SUV's and trucks that get worse gas mileage than the Big Three vehicles they compete against?

[Bobbi]

When reviewing the chart posted above it appears as if the cut off for cars is not 18 mpg. but rather, 22 mpg. Is the chart inaccurate or are the rumors about the bill inaccurate? -Or am I just reading the chart incorrectly?

[Bobbi]

Nevermind. Id like to recall that. I get it now. So my 13 year old celica with 295,000 miles on it does not qualify even though I'm sure the esstimated mpg rating does not accurately reflect what my car gets in reality. Nice...

Too bad, I was going to get a hybrid.

[Bobbi]

Does the proposal have a number?? When looking on the Senate agenda I could not find it. Also, would this money be taxed? -To what percent? Some portions of TARP may be taxed up to 90 percent!

[Tom P]

Hello

I have two older cars on is a 92 1/2 stanza altima nissan and the other is a Chevrolet 1988, and both cars do well on Fuel economy the nissan (4cyl)gets 40 highway the chevrolet 32 its a v6, and yes my old chevrolet does not have air bags did not need them its a stronger car it will not crumple like the new toy cars of today with plastic front ends. its all metal steel.

and the hybrids are a jokes a small 1.8 or 1.9 liters, that get 40 highway I dont see this being better then my nissan.

and another thing the ethanol in the fuel lowers miles per gallon so why are you guys working against yourselves,
to increase MPG, get rid of the Ethanol Period.

my chevy book states ethanol has lower energy then regular gasoline. and will need more fill ups sooner then regular gasoline.

As Jesus said in the bible if a city or town waring with its self is doomed. and thats what you guys are doing trying to make fuel economy higher but you use a product (Ethanol)which lowers te gas economy. Makes no sense to me.

Its not rocket science.

cheers

[Truth Detector]

This is great. I am starting up "Voucher Motors" and am picking up every junker from abandon vehicle auctions I can find and selling them at a lovely profit. $50 to $100 to buy the car, sell it for $500 to someone to collect their $4500 voucher and everyone is happy. Of course all it does is create a market for cars that would have been junked anyhow.

[katf]

Really ridiculous considering where we ultimately need to go: mass transit, reduction in reliance on autos, general move away from cars an highways, oil, etc. And so many of you above make the better point that this is rewarding 1) many people who were not environmentally oriented in the first place (duh, energy crisis of '70s and overall decades long climate problems), and 2) the US automakers who knew better, just like the Japanese did, but chose, instead, to equate sex/masculinity/self-esteem with huge gas guzzlers.

[karenc]

This bill would put every charity car donation program in the nation out of business since the amount of the voucher would be much greater than the tax deduction. The solution is to simply allow the charity to issue the voucher in lieu of the tax deduction. The charity would then junk the car in accordance with the bill. This way, everyone wins, the car dealer, car maker, car buyer and the charity.

[Matthew]

Actually you can't just go buy an old junker. if you read into it would have had to have been insured. Also, am i the only one that notices that there is no AGE restriction this, only MPG? I have a 2008 Jeep Wrangler that gets a combined 16 according to . From everything i've read i would qualify, even though my vehicle is only a year old.

set me straight if you can, if not i would LOVE a new truck =)

[Eric]

Just another tremendous waste of taxpayer money and, as many have pointed out, not fair and subject to a great amount of fraud.