According to reports out of Washington this afternoon, the House has reached agreement on the terms of a "Cash for Clunkers" bill after Congressmembers from the automaking states visited President Obama this morning. The House is expected to vote on the bill soon, perhaps within a week or two.
We covered the terms of the two competing bills yesterday, and the compromise bill appears to aim for maximum sales by setting lower mileage requirements and allowing purchase of any qualifying vehicle.
To be eligible for a $3,500 incentive, buyers must trade in cars that get 18 miles per gallon or less. For a $3,500 rebate, the replacement must achieve at least 22 mpg. For the full $4,500 rebate, the new car must get at least 10 mpg more than the old one (and at least 22 mpg as well).
For pickups, SUVs, and large light-duty trucks, the mileage requirements would be similar but lower. Incentives will also apply to heavy-duty work trucks if they were built before 2001.
The compromise bill's mileage requirements are weaker than the first bill, sponsored by Representative Betty Sutton (D-OH), which required that the new vehicle get at least 27 miles per gallon. Importantly, the compromise does not adopt the Sutton bill's requirement that new vehicles be built in North America, which had been heavily pushed by representatives from auto states.
By comparison, Department of Transportation standards issued in March require that new cars and light trucks achieve a fleet average fuel economy of 27.3 miles per gallon. Environmentalists had backed the competing bill by Representative Steve Israel (D-NY), which required that new vehicles offer mileage at least 25 percent higher than the average for that vehicle class.
Note, though, that because MPG is not a linear scale, the difference between 22 and 27.3 mpg saves just 0.9 gallons of gasoline every 100 miles, while improving from 18 to 22 mpg saves 1.0 gallons every 100 miles.
Even better, anyone replacing a 16-mpg car with one that achieves 22 mpg saves 1.7 gallons over the same distance. If the clunker gets 14 mpg, the savings mount to 2.6 gallons, and if the old car is really bad--12 mpg--a full 3.8 gallons of gasoline are saved every 100 miles.
From the press release issued by the Energy & Commerce Committee:
Under the 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. Miles per gallon figures below refer to EPA “window sticker” values.
· 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.
· Light-Duty Trucks: The old vehicle must get less than 18 mpg. New light 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 truck, 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 truck, the voucher will be worth $4,500.
· Large Light-Duty Trucks: New large trucks (pick-up trucks 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 smaller light-duty truck weighing from 6,000 – 8,500 pounds.
And not surprisingly, carmakers seem to approve. GM's brief end-of-day statement:
Based on our understanding of the fleet modernization program announced today, GM supports the plan and urges Congress to move forward as quickly as possible to enact such a program for the US market.
Scrappage programs implemented in other countries around the world have proven to be very successful in re-invigorating car and truck sales. The approach of providing vouchers for new vehicle purchases, which is tied to getting older, less efficient vehicles off the road at the same time, is a huge win for consumers, the economy, and the environment.