What do we want a Cash for Clunkers bill to do -- improve fuel economy or protect U.S. jobs?

President Obama asked Congress yesterday to pass fleet modernization legislation that provides credit to consumers who turn in old cars and purchase cleaner, more fuel-efficient cars during his GM bankruptcy speech. It wasn’t the first such request, as readers will know.

This should be a relatively simple law-making task. Well, nothing is easy about our special interest-dominated legislative process.

Cash for Clunkers is caught between environmentally-oriented legislators, who want to concentrate on fuel efficiency, and domestic auto industry- friendly lawmakers, who see it as a sales boosting tool.

As we have covered in detail, House Democrats from the Committee on Energy and Commerce have already passed legislation authorizing the government to subsidize vehicle buyers who trade in old ones for new, but it is tied up in a much larger, more controversial energy and global warming bill that won’t move forward anytime soon. Democrats are saying that they might attach the Clunker bill to another bill to get it moving, but until the Senate acts, it’s stalled. The Senate is due to consider a Clunkers bill this week, and the greens (as in environment) are fighting the greens (as in dollars from jobs).

The compromise House bill provides billions of dollars in taxpayer-financed incentives to buyers who trade in older vehicles for new ones. Buyers would receive a coupon, worth $3500 or $4500, if the new vehicle is more fuel efficient than the one replaced. The House program could cost taxpayers as much as $4.5 billion during the one year it would run, if all of the one million authorized coupons are cashed in. The money would come from the economic stimulus plan already approved by Congress last winter.   

The House bill does not, thus far, require any financing from the very automakers that would benefit the most from it. A similar program in the United Kingdom requires an automaker match, as TDB has reported. And unlike earlier versions of the bill, all vehicles built in the U.S. would be covered.  

In the Senate this week a show down is coming during hearings over its version of a Clunker bill that pits Senator Debbie Stabenow from Michigan against Senator Dianna Feinstein from California. Neither version has an automaker match, but they differ significantly in how they treat automaker’s vehicles.

Simply put, Stabenow wants to mirror the House bill that would in part favor sales of trucks and cars that aren’t all that fuel efficient in their segments, but are built largely by U.S. makers. This Stabenow-Brownback amendment, as it is known, has provisions that were agreed to by the Obama administration, House Democratic leaders, the domestic automakers and the UAW. (Drive America Forward Act, S.1135)

Feinstein, who last time I checked was a Democrat from bankrupt California, favors a version of the clunker bill that would increase fuel economy much more and eliminate some of the domestic car and truck sales.

There’s history here: Senators Feinstein and Susan Collins (R-Maine), along with Senator Olympia Snowe (R-Maine) and others, were sponsors of the Ten in Ten Fuel Economy Act, which will increase the average fleet-wide fuel economy of all new passenger cars, trucks and SUVs by at least ten miles per gallon over ten years, beginning with model year 2011. This bill has been effectively superseded for the moment by the fuel economy compromise of President Obama called the “National Fuel Efficiency Policy.”   

However, one of the key elements of  Ten in Tenand our new  proposed fuel economy regulations is an attribute-based Corporate Average Fuel Economy standard, which means that the fuel economy of the class of trucks is compared to only to other trucks, and likewise with SUVs to SUVs, and small cars to small cars. Feinstein wants to be sure that a Clunkers bill is crafted in a way that does not inhibit attaining the higher fuel economy goals of Ten in Ten.

The Senate version of the Clunkers bill eschews the mundane task of assigning a cost. It will also pay for whatever emerges out of the $787 billion stimulus package that Congress passed in February. Given all the pork involved in the stimulus bill, and the general lack of mathematical or budget balancing skills on Capital Hill, I wonder if there is any money left anyway, but that’s another matter.

“The ‘Cash for Clunkers’ proposal that I’m putting forward with Senators Collins and Schumer would place a greater emphasis on fuel economy improvements than the House compromise — which could allow for the scrapping of perfectly adequate vehicles in return for federal incentives to purchase gas-guzzling vehicles. That’s unacceptable,” Senator Feinstein said.

As Always the Devil Is Buried In the Details of the Bills

The Feinstein counter proposal to the House bill requires that the newly purchased vehicle have above-average fuel economy for its class of vehicles. This proposal would also require that the trade-in vehicle have a fuel economy of 17 miles per gallon (mpg) or less, instead of the 18 mpg in the House bill.

Feinstein calls the House 18 mpg a “compromise.” Proponents of the House version call it common sense. Critics of the Feinstein version say a large portion of the incentives would wind up subsidizing the production of vehicles made in Japan and other countries. This would inevitably lead to more plant closings and further job losses in the United States.

 “This bill is a win-win for Michigan and the country,” said Senator Stabenow of her UAW-backed version. “Not only will we provide incentives to bring people back into dealer showrooms, but we will remove less fuel-efficient vehicles from our roads helping to reduce pollution in our environment and preserve our way or life. Bottom line, this legislation will help stimulate new car and truck sales, saving good-paying jobs in the process.”

And so it goes. Part of the problem is lack of agreement on what a Cash for Clunker bill is supposed to accomplish – improve fuel economy or protect U.S. jobs. Both are laudable goals. But if we continue to pursue both, we are likely to get neither.

If you don’t know where you are going, any road (or bill) will get you there – with apologies to Lewis Carroll, and the Cheshire Cat. This isn’t Alice in Wonderland,  though, but the U.S. Congress.