Congress to Consider 'Cash for Clunkers'

Posted 1/5/2008
By Robert L. Redding Jr.

Late last year, we discussed in AutoInc. a "Cash for Clunkers" proposal offered by Dr. Alan Blinder, a Princeton University professor and former vice chairman of the Federal Reserve Board.

Blinder argued in his "Cash for Clunkers" piece that although some state governments have attempted these programs, it would be in the best interest of the federal government to consider a "Cash for Clunkers" program. Specifically, this program would provide an "eco-friendly stimulus" to the U.S. economy. He highlighted a California study that estimates that cars 13 years old and older account for 25 percent of the miles driven, but 75 percent of all pollution from cars. State "Cash for Clunkers" programs have been pursued in California, Colorado, Delaware, Illinois, Texas and Virginia.

In a recent hearing before the House Financial Services Committee on "Stabilizing the Financial Condition of the American Automobile Industry," the National Automobile Dealers Association proposed funding for state fleet modernization (also known as "cash for clunkers") programs like those in place in Texas and California that encourage consumers to upgrade their older vehicles to newer, more environmentally friendly models.

Dr. Peter Morici, a University of Maryland Robert H. Smith School of Business professor, also raised the fleet modernization option in a dialogue with Senate Banking, Housing and Urban Affairs Committee members during a hearing titled "Examining the State of the Domestic Automobile Industry." General Motors Corp. also mentioned the option in its business plan submitted to Congress.

Finally, in climate change draft legislation offered by Rep. John Dingell, D-Mich., chairman of the House Energy and Commerce Committee, language was included to create a vehicle recycling program:

"A state may provide assistance ... to encourage private entities to purchase vehicles with Environmental Protection Agency average miles per gallon ratings of 15 miles per gallon or less for permanent disposal and recycling of materials, but not for replacement parts."

It is more likely that the "cash for clunkers" or fleet modernization debate will occur during the larger economic stimulus legislation than the consideration of auto manufacturer financial assistance legislation.

The Automotive Service Association asked its Mechanical Division Operations Committee to review the programs in place in various states, specifically Texas and California. After discussing options, ASA has proposed that Congress include a "repair option" in any fleet modernization legislation. In a letter to key members of Congress, ASA stated:

"America's independent automotive repairers often provide a less-expensive repair alternative to consumers, and are more conveniently located in many rural areas. Independent facilities repair approximately 75 percent of all vehicles out of warranty. Most consumers use the franchised dealer network for warranty repairs, and then select their neighborhood repair facility once the vehicle is out of warranty."

If Congress, in either an automotive industry stabilization package or in broad economic stimulus legislation, opts to include a fleet modernization program, ASA requests that they consider the following important points:

• Include a vehicle repair option for consumers.

• Programs should be administered by the states.

• Vehicle participation should be tied to emissions and improving air quality.

• Repair cost allowances should be sufficient to address emissions repairs.

ASA encourages Congress and states to review the Texas and California programs to determine how best to structure such a program. If a new law is passed, states would be well- served to establish advisory committees made up of consumers, independent repairers and new car dealers to determine the most effective program.

Bob Redding is the Automotive Service Association's Washington, D.C., representative. He is a member of several federal and state advisory committees involved in the automotive industry. For more information about the legislative activities of ASA, visit www.TakingTheHill.com.