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“Cash for Clunkers” Program Yields Dubious Benefit

July 24, 2009

“Cash for Clunkers” Program Yields Dubious Benefit

Statement of Lena Pons, Policy Analyst, Public Citizen’s Congress Watch Division

The National Highway Traffic Safety Administration (NHTSA) released today its regulations for the Car Allowance Rebate System (CARS) or “cash-for-clunkers” program, and they are disappointing.

The program has been touted as a way to get cleaner cars on the roads while restarting sluggish auto sales. But the program is unlikely to be effective at achieving either goal. Its fuel economy benefits are vague, and NHTSA estimates that the increase in sales for each dealer will be only 12 vehicles. This number is probably an overestimate, since NHTSA has not attempted to account for purchasers who would buy new vehicles anyway.

Under CARS, consumers who trade in cars and light trucks that get less than 18 miles per gallon up will receive to $4,500 to buy a new vehicle from the program. A car may be traded in for a new car that gets as little as 22 miles per gallon; the owner of a large pickup truck that gets 15 miles per gallon or less may be eligible for a $3,500 voucher to purchase another large pickup truck of no better fuel economy if it is “smaller or similar” in size.

Already, dealers are jockeying for Congress to provide the program with additional funds. Auto dealer analysts estimate that the $1 billion already allocated will be exhausted by Labor Day. Appropriations for the program were deliberately limited so that NHTSA and lawmakers could determine whether the program is working before spending any additional funds on it. That approach from Congress is sound. Before providing another giveaway to an industry that has received $66 billion in bailout funds, we need to evaluate whether the program has any benefits. The best and quickest way to do that is to evaluate the trade-ins as they occur-but NHTSA’s regulations do not permit this.

NHTSA’s regulations outline dozens of pieces of information it will collect to track how the program is working and to avoid fraud. But the regulations do not require it to make any of this information available to the public immediately. Instead, advocates will need to request the data from the agency, which will prevent timely analysis of the trade-ins by independent organizations. Congress should wait to consider whether to appropriate more money until a full assessment of this program has been made.

NHTSA’s regulations also attempt to prevent fraud by requiring dealers to label vehicle titles with the words “Junk Automobile, CARS.gov,” and requiring that the National Motor Vehicle Title Information System (NMVTIS) provide a classification for vehicles in this program. NHTSA will fine dealers or individuals $15,000 for each fraudulent transaction. Public Citizen has been involved in efforts to prevent fraud in the used car market and will continue to watch how this program interacts with NMVTIS.