03 April 2009

Cash-For-Clunkers Plan Gains Speed

As Originally Posted to the Wall Street Journal

WASHINGTON -- A plan to give government cash to consumers who trade in their old cars gained sudden momentum this week after President Barack Obama supported the concept as part of his effort to revive the U.S. auto industry. But the so-called cash-for-clunkers plan still faces hurdles.

Bills by Rep. Betty Sutton (D., Ohio) and Sen. Dianne Feinstein (D., Calif.) would provide cash vouchers to buyers who turn in inefficient older cars and purchase newer ones with better gas mileage. The concept is similar to one that has been used in Europe to spur sales, most recently in Germany.

The idea had been attracting moderate interest in Congress for months. But in his sweeping remarks on the auto industry Monday, Mr. Obama said he wants to work with Congress to find ways to find money for such a program in his economic-recovery package.

"The president's statement accelerates our looking at all of these issues," said Rep. Sander Levin (D., Mich.), who supports the idea.

Ms. Sutton's bill would provide buyers vouchers of $3,000 to $5,000 if they turn in cars that are eight years old or older and buy new cars that get at least 24 miles per gallon on the highway or trucks that get 27 mpg. The money could also be used for mass transit.

In Ms. Feinstein's bill, which provides incentives of $2,500 to $4,500, the "clunker" could get no more than 18 miles per gallon. The new car would have to exceed fuel-efficiency standards for its class by at least 25%.

Ms. Feinstein's bill wouldn't cover vehicles that cost more than $45,000, while Ms. Sutton would cap the new car's price at $35,000.

The cash-for-clunkers concept is appealing to many lawmakers as a way to simultaneously boost the economy and help the environment. But it isn't clear whether the plan would violate international trade rules and where the funding would come from.

Daniel J. Weiss, senior fellow at the liberal Center for American Progress, said the stimulus contains $91 billion for clean energy, including $3.3 billion for clean vehicles, and some of that money could be used. The center estimates the cost of the programs at $1 billion to $2 billion a year.

Ms. Sutton's bill would apply only to cars made in North America, and some say that would run afoul of World Trade Organization rules. When Germany and other European countries created similar programs, the European Union declared that they would violate WTO rules if they applied only to cars made in those particular countries.

Ms. Feinstein's bill avoids this problem by applying to vehicles manufactured anywhere. But some supporters of the cash-for-clunkers idea prefer that it focus on helping U.S. auto makers.

"The goal of boosting sales and jump-starting our auto industry and stimulating our economy is one of the goals that cannot be sacrificed in this process," said Ms. Sutton. "But we are open to ideas that will help us accomplish that goal."

As for where to get the money, Mr. Obama said he wanted to "identify parts of the Recovery Act that could be trimmed." But it isn't clear what those parts would be, and any such trimming could prompt opposition from supporters of whatever program was losing money.

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