Streetsblog Capitol Hill

The Obama administration plans to close the door on the politically popular and environmentally slipshod auto trade-in program known as "cash for clunkers," according to a report this afternoon in the Wall Street Journal:

Transportation Secretary Ray LaHood said Wednesday he would disclose within two days updated figures on the program, including how much of the $3 billion in funding was left. He said he would also offer a blueprint for how the administration will wind down the program to ensure all vouchers issued by dealers are reimbursed by the government before the money runs out.

"They're going to get their money," Mr. LaHood said, responding to dealers' complaints of payment delays. "There will be no car dealer that won't be reimbursed."

Auto dealers have submitted claims to about $1.8 billion of the program's taxpayer-funded rebates, which represents 435,102 vehicle purchases, according to data released today by the U.S. DOT.

The White House's commitment to electrified cars, fulfilling an Obama campaign promise to put 1 million plug-in hybrids into service by 2015, is bound to have serious ramifications for the nation's already-crumbling system of paying for transportation.

But could the administration continue to leave the gas tax untouched while relying on taxpayer-subsidized rebates to gin up new car sales? That prospect is a very real one, as two new posts from the Atlantic and the New Republic observe.

The first post focuses on the government's plug-in hybrid tax credit, which was expanded by the economic stimulus law to offer up to $7,500 per vehicle for the first 200,000 models sold by every automaker.

The Atlantic incorrectly states that the stimulus allocated $2 billion to the credit -- that number is the estimated cost of the provision, which has no dollar limit -- but the risk remains the same: If GM sells 200,000 of its Chevy Volts, the credit would take $1.5 billion in revenue from government coffers.

If similar successes for the Nissan Leaf and the upcoming plug-in Toyota Prius follow, it's easy to see the cost of the tax credit topping $4 billion. And as "cash for clunkers" showed, members of Congress are loath to limit popular pro-industry programs during an economic slowdown for fear of "messing with success" -- regardless of the estimated costs of the benefits in question.

That could lead to an extension of the plug-in hybrid credit to continue stimulating sales, at a continued cost to the already-depleted Treasury. Meanwhile, the less popular option of increasing the gas tax would immediately pay for itself (as my colleague Ryan put it earlier).

The New Republic's post looks at a still-unpassed proposal for "feebates," a combination of taxes on gas-chuggers and rebates for buyers who choose cars that exceed fuel-efficiency standards. Again, feebates follow the "cash for clunkers" template by using taxpayer money -- the fees are not guaranteed to offset the rebates and likely wouldn't if drivers flock to efficient models -- to encourage greener car-buying behavior.

But even if an "independent mileage benchmark" were used to ensure that the feebates pay for themselves, as the author suggests, the more prudent course of action would be simply to keep raising fuel-efficiency (CAFE) standards. Given that a proposal for a 40 miles per gallon standard fell three votes short of becoming law 20 years ago, the current 35.5-mpg plan appears ripe for an upgrade.

The issue comes down to political courage: Offering rebates and tax credits doesn't require much of it, but raising the gas tax and CAFE standards takes quite a lot.

The New York Times has now turned loose writers at two of its economics blogs to make weak arguments against the construction of high-speed rail lines.

I have been following Ed Glaeser's attempt to do a back-of-the-envelope assessment of the costs and benefits of a hypothetical rail line (catch up here and here). Now, Freakonomics' Eric Morris seems to want to get in on the act, via a lame post comparing the effects of high-speed rail with the fruits of "cash for clunkers."

Let me just begin by pointing out how utterly ridiculous this comparison is. The Obama administration's vision for high-speed rail essentially involves a multi-decade effort to significantly upgrade transportation infrastructure along several of the country's most economically important metropolitan corridors.

"Cash for clunkers," on the other hand, is a $3 billion, roughly two-month program of automobile purchase incentives.

Given this, it's hard to know what Morris is aiming to prove. That "cash for clunkers" makes for a better short-term stimulus? Okay, I'll accept that; high-speed rail is not going to provide much of an economic boost over the next 18 months.

On the other hand, the Kansas City Fed is warning that unemployment might not get below 6 percent again until 2018. If we're looking at a decade's worth of slack in the labor force, which is likely to be a better salve -- a major infrastructure investment program, or ten years' worth of "cash for clunkers"?

Over a longer time frame, the comparison between the policies ceases to be of much use. They're not remotely designed to do the same things. So instead, let's just talk about what each means for the environment.

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During the Senate's debate over giving $2 billion more to the "cash for clunkers" car rebate program, John McCain (R-AZ) quipped that "cash for refrigerators" might be next in line.

Does McCain know that it's already happening -- with a much bigger environmental boost than the auto version?

In Michigan, the Detroit Free Press reports today that refrigerator recycling programs have taken more than 1,000 power-swigging models off residents' hands in less than two months, distributing a $50 rebate for each trade-in.

Similar refrigerator-rebate programs are also succeeding in New Jersey, Vermont, and Massachusetts.

Here's where the superiority to "cash for clunkers" comes in: The car rebates, which run as high as $4,500 per purchase, ultimately cost taxpayers around $160 per ton of carbon dioxide removed from the atmosphere, assuming that current patterns of fuel-efficiency improvement hold.

But "cash for refrigerators" programs typically offer between $25 and $50 for the removal of old fridges that emit chlorofluorocarbons (CFCs), the chemicals behind the growing ozone hole that were eliminated from home appliances in the 1990s.

Ridding a home of a CFC-spewing fridge removes about five tons of carbon dioxide from the atmosphere, recycler Sam Sirkin told the New York Times last week. That works out to a cost of $10 per ton for the richest refrigerator rebate program -- more than 10 times cheaper than "cash for clunkers."

The U.S. DOT never responded to Streetsblog Capitol Hill's request for a copy of the contract that Citigroup -- which remains one-third-owned by the government after taking a $45 billion bailout -- received to process car dealer claims under the "cash for clunkers" program. But Dow Jones did pry loose one key detail on Friday, reporting that the deal is worth "an estimated" $7.7 million.

Given that $2 billion in extra "clunkers" money has been approved since Citigroup began its work, however, it's reasonable to suspect that the bank is now getting more money to administer the delay-plagued car-purchase rebates.

A DOT spokeswoman "declined to comment on whether the size of the contract has grown" when asked by Dow Jones and declined to produce additional information about the deal, such as any ceiling on contractor hours or total value.

Oracle is also a contractor on the program, snagging a $1.6 million deal to run the website for aspiring auto buyers.

In other "clunkers" news, the advertising bonanza sparked by the taxpayer-funded auto rebates is calming nerves in the media industry, while keeping  Andrew Cuomo busy. The New York attorney general sent cease-and-desist letters today to 40 auto dealers whom he says are misleading car owners on the limitations of the government rebates or marketing separate promotions under the "clunkers" name.

One thing the "clunkers" money is still not doing: providing significant environmental benefits, as a team of analysts from the World Resources Institute, Stanford University, and the University of California - Berkeley outlined in an op-ed presentation for the Washington Post.

When the Obama administration first called for more "cash for clunkers" last week, two influential senators said they could not back an extension without stronger efficiency standards for the program's trade-ins -- only to drop their opposition after viewing U.S. DOT sales figures that showed buyers snapping up gas-sipping cars.

But as it turns out, those figures relied on a bit of fuzzy (and Environmental Protection Agency-approved) math. Vehicles were separated according to 4WD, 2WD, and hybrid varieties, unlike more traditional auto-sales figures that tally all three, listing only the make and model.

When CNN enlisted independent auto-industry trackers at Edmunds.com to project the sales figures if all engine varieties counted as a single vehicle, a funny thing happened: The top "clunkers" seller went from the efficient Toyota Corolla to the Ford Escape SUV.

The Escape is available as a hybrid, which gets 29 miles per gallon and 11.8 barrels in average annual oil consumption, according to the government's fuel-economy tracker. The Corolla gets identical scores.

But the Escape's conventional varieties get 22 and 24 mpg, with much higher oil use estimates.

The Edmunds.com study also found that two full-size trucks, the Ford F-150 and Chevy Silverado, would rank in the "clunkers" top 10 if the DOT counted their multiple varieties as a single vehicle. The Silverado gets either 15 or 17 mpg, depending on the engine type, while the F-150 gets between 16 and 17 mpg.

In contrast to the DOT's sales list, which ranked foreign-made cars in six of the top 10 spots, Edmunds.com's adjusted list found that eight of the top 10 most-purchased vehicles were GM, Ford, or Chrysler.

The "cash for clunkers" car trade-in rebates are alive and well today after an evening Senate vote to give the taxpayer-subsidized program $2 billion -- money that was supposed to go to clean-energy loans and will almost certainly be replaced by new spending.

The final vote was 60-37, with a handful of Democrats and Republicans switching sides to vote against their party leaders.

The GOP "clunker" backers were Sens. Bob Corker (TN), Olympia Snowe (ME), George Voinovich (OH), Kit Bond (MO), Susan Collins (ME), Lamar Alexander (TN), and Sam Brownback (KS) -- who yanked his support from the rebates' first iteration in June.

Democrats who opposed the "clunker" money were Sens. Claire McCaskill (MO), Patrick Leahy (VT), Mark Warner (VA), and Ben Nelson (NE).

Warner and Leahy were both openly skeptical of the program's merits. Warner told a local TV reporter in his state that he questioned the environmental value of the "clunkers" tax credit, adding that they should not become a "long-term ... stipend" for car buyers.

Leahy, in a statement explaining his vote, referenced the Obama administration's reluctance to release complete information about the individual sales being conducted under the "clunkers" banner:

[W]hile we know that cars are moving off sales lots and onto the road, we have yet to receive enough details about the current sales data to know the true story of whether this program is working as intended.

Late Update: McCaskill also sounded off on her reasons for opposing more clunkers money. "Remember, around 60,000 to 70,000 people are trading their cars in for new ones every month without this program," she wrote on her Tumblr blog.

A $2 billion renewal of "cash for clunkers" is now almost assured, with GOP senators easing up on their threat of a filibuster and one key Democrat remarking that "the statistics [for the program] are much better than everyone thought."

But if the "clunkers" data is so successful, why won't the U.S. DOT release it in full? From the AP:

The Obama administration is refusing to release government records on its "cash-for-clunkers" rebate program that would substantiate — or undercut — White House claims of the program's success, even as the president presses the Senate for a quick vote for $2 billion to boost car sales.

Transportation Secretary Ray LaHood said Sunday the government would release electronic records about the program, and President Barack Obama has pledged greater transparency for his administration. But the Transportation Department, which has collected details about 157,000 rebate requests, won't release sales data that dealers provided showing how much U.S. car manufacturers are benefiting from the $1 billion initially pumped into the program.

Some initial numbers on "cash for clunkers" have been circulating widely in Washington as the White House prods senators to approve the $2 billion infusion before leaving town this weekend for a month-long recess.

Yet only about half of the 250,000 auto sales attributed to the program have been processed so far, according to lawmakers, casting doubt on the definitiveness of the data.

The non-profit watchdog group Public Citizen filed a Freedom of Information Act request today seeking more detailed numbers on "clunkers" sales. As Streetsblog Capitol Hill reported yesterday, the DOT is also declining to release details on the deal it signed with Citigroup, beneficiary of a $45 billion government bailout, to help process "clunker" deals.

What's no secret, however, is LaHood's ideal choice of a new car. "I have my eye on an Explorer, four-wheel drive," he told MSNBC yesterday. The 2010 Explorer 4WD gets a combined 16 miles per gallon -- barely qualifying it for the "clunkers" program.

At this point, it's difficult to know exactly what the government's "cash for clunkers" program is supposed to accomplish.

Claims about its economic and environmental benefits are increasingly detached from reality, and the chief advantage of the program would seem to be that it "worked," in the sense that it was popular among those looking to buy a car.

To add to Elana's post yesterday on the "myths" circulating about the program, let me offer a few thoughts on how best to think about whether the program has provided actual net benefits.

The first thing to consider is what would have happened in the absence of the program. Vehicle sales rose fairly strongly in July, and this will no doubt be attributed to the "clunkers" rebates.

But during the recession, sales hit historic lows. Replacement rates for vehicles sank to unsustainable levels, suggesting quite a bit of pent up demand in the economy.

With economic recovery and continued improvement in credit markets, sales were sure to begin rising, with or without a government subsidy.

"Cash for clunkers" may have altered the timing of purchases, but in all likelihood most of these buyers were going to be in the market soon anyway.

What about the efficiency savings generated by the program? To generate its 0.5 percent of oil consumption savings estimate, the study Elana cites used the following assumptions:

The projection assumes some 250,000 "clunkers" with an average 15 miles per gallon efficiency are traded in for vehicles rated at an average 25 mpg, and travel an average 10,000 miles per year.

Given that far less than a 10 mile per gallon improvement is required to get a $3,500 voucher for a car or any voucher on an SUV or truck, it's not clear that this is an appropriate number to use. And even when efficiencies do improve significantly, the increase in mileage can't be solely attributed to the program.

Moreover, most of the clunkers being traded in this summer will have been purchased at a time when oil prices were lower than they are at present. Real oil prices in 2003 were half their current level; those in 1998 were one-fifth of prices now.

So in all likelihood, efficiencies for new vehicle purchases would be, on average, higher than those of trade-ins even without the program.

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As debate rages on in the capital over whether to keep assisting the auto industry by giving out more "cash for clunkers" rebates, two assertions are becoming commonplace: the program is helping diminish U.S. oil consumption, and the program is not paid for with new money.

The first argument was reiterated on Friday by President Obama, who said of the "clunkers" auto trade-in discounts: "This gives consumers a break, reduces dangerous carbon pollution and our dependence on foreign oil, and strengthens the American auto industry."

That same day, however, energy analysts were crunching the numbers for Reuters. Even if $2 billion in new "clunker" rebates were offered, they found, the total resulting decline in America's daily oil consumption would be 0.05 percent:

"It has proved to be a highly successful vehicle marketing tool," said Tim Evans, energy analyst for Citi Futures Perspective in New York. "But you would need a microscope to see the demand impact for gasoline from this program because it involves a relatively small number of vehicles."

The Reuters estimate assumes an average upgrade in fuel efficiency of 10 miles per gallon, which is in line with initial auto industry statistics on new trade-ins.

The analysis also assumes 250,000 trade-ins, which the government estimates is roughly the number that took place during the first $1 billion week of the taxpayer-subsidized "clunkers" program. Given the likelihood of new funding for the rebates, however, that 0.05 percent number could double or triple -- for a total daily oil-consumption reduction of 0.15 percent.

The second argument, that offering $2 billion in extra "clunkers" cash would not amount to deficit spending, stems from Democratic leaders' decision to shift the funds over from a Department of Energy (DoE) loan guarantee program.

That strategy was designed to appeal to fiscal hawks who would have a difficult time voting to add to the already trillion-dollar federal deficit. Indeed. Sen. Claire McCaskill (D-MO) already put her leaders on notice (via Twitter) that she could only vote yes on "clunkers" if no new money was spent.

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