The Cash-for-Clunkers program passed by Congress earlier this year is on the verge of running out of money—after four days!
CfC pays $3,500 to $4,500 for consumers who trade in a car which qualifies, on the basis of age and gas mileage, as a clunker for a car which gets at least 4 miles per gallon more. The legislation authorized $1,000,000,000 in spending, and about $850,000,000 of that was toted up in four days.
House Majority Leader Steny Hoyer is talking about transferring $2 billion of stimulus money to finance CfC; my Examiner colleague Mark Tapscott gives five reasons why Congress won’t ever shut it down.
In the process there have been glitches. CfC requires dealers to subtract the $3,500 to $4,500 subsidy from the purchaser’s price and to apply to the National Highway Traffic Safety Administration for reimbursement.
That may be slow in coming; in effect, the Treasury is getting interest-free loans from auto dealers. Considering how forcefully dealers have lobbied against the dealer terminations by Government Motors—er, General Motors—and Chrysler, we can expect to see them pressing for speedier reimbursement. In the meantime, will their bankers loan them money on the security of the government guarantee?
Also, as Henry Payne of the Detroit News points out, CfC’s requirement that the clunkers be destroyed means that they can’t be mined for spare parts, which many low income car owners rely on to get their vehicles going.
How much will CfC ultimately cost? The sky may be the limit. The Almanac of American Politics 2002, of which I am co-author, describes a similar program in Arizona:
Her [Governor Jane Hull’s] biggest mistake was signing the alternative fuels program pushed by House Speaker Jeff Groscost. This provided huge subsidies, averaging over $20,000, to cars equipped to run on alternative fuels—propane, natural gas, electricity. The law did not require motorists to use the alternative fuels, and soon car owners were installing small propane tanks in their SUVs and demanding huge rebates. The program was billed as costing $5 million, but over the fall the cost zoomed up to $500 million—one-tenth of the state budget. Hull called a special session of the state legislature in November 2000 and suggested the state would pay the rebates over five years; Attorney General Janet Napolitano argued that the rebates could be voided if the law were repealed in the same year it was passed. Eventually the law was repealed in December 2000, but the cost to the state has been huge.
By the way, Hull is a Republican and Republicans had majorities in both houses of the legislature. Napolitano, a Democrat, was elected governor in 2002 and 2006 and is now Homeland Security Secretary. I wonder if her advice has been sought on the CfC program.
