Cash for Clunkers, the government's program to give a rebate to people who upgrade their old gas-guzzlers to newer, more fuel-efficient cars, ran out of money recently. Unfortunately, Republicans want to oppose an extension. In this diary, I'll give three good reasons why cash for clunkers needs to be extended.
Reduce Fuel Use and Pollution: At it's core, Cash for Clunkers is about reducing automobile pollution and cutting down on our need for foreign oil. To get the full $4500, consumers need to make a 10mpg upgrade in their cars, or a 5mpg upgrade in their SUVs. That represents a 33% to 50% boost in gas efficiency for these cars. Let's round it off to 40%, since this is a major guesstimate anyhow. There are 250 million cars in the US, and Cash for Clunkers upgraded 250 thousand. That's 0.1% of our fleet in about a week. In the US, we drive about 3 trillion miles per year, and use 141 billion gallons of gas per year. With an increased fleet efficiency of 0.04%, that's the equivalent of driving 120 billion fewer miles per year, and saves 5.6 billion gallons of gas per year. 20 gallons of gasoline is a barrel of oil. At $70 per barrel, that's $19.6 billion we're not giving to the Middle East for oil.
Great for American Companies: The industry in America that's most in need of help right now is the automotive industry. GM and Chrysler went into bankruptcy already this year, and Ford's hurting too. 200,000 new cars means that some workers get to keep their jobs, or get to hold onto a few more hours/week. It's the best kind of bailout we could possibly do. And let's not forget all the dealerships, many of which are small businesses that really need a hand to keep their heads above water.
Effective, Fast-Acting Stimulus: Furthermore, this is probably the best stimulus we've ever had. Let's say a new car costs $20,000. If the dealer offers $2500 off in addition to the $4500 credit Cash for Clunkers offers, that's $13,000. We're getting $13,000 in consumer spending for $4500 in government money, a 2.9:1 ratio. In terms of stimulus bang for the buck, that beats most other ideas, including tax cuts and infrastructure spending. We can't do $700 billion of this (we'll run out of people with clunkers who can afford a new car), but if we can do $3 billion, we definitely should.
In short, putting another $2 billion or so into Cash for Clunkers is well worth it. For $1 billion, we already reaped $19.6 billion in foreign oil savings, and $2-3 billion in new spending. It's definitely a better deal than $2 billion in energy loans, and it's even worth adding it to the deficit if we have to. It's a sound policy and a fine example of a government initiative working well. We can't let Republicans block it in their quest to be as obstructionist as possible.