Cash for clunkers' drives new car sales

After a wildly successful start, the federal government's 'cash for clunkers' program appears to be on track for renewal this week. A Senate vote by Saturday is expected to inject $2 billion more into the program, which sources say has already helped to sell some 157,000 new cars since its implementation late last month.

The Car Allowance Rebate Program (CARS), the official name of the program, provides credits of between $3,500 and $4,500 to new car buyers if they trade in their older, low fuel economy car for a new car with higher gas mileage.

According to information from the Obama administration, the $1 billion program set to expire this fall spent between $600 million and $700 million in just the few days after it started on July 24. The program had to be halted to avoid running out of cash.

Media reports indicated that both the Ford Motor Company and car dealers around the country have reported an expansion of business as a direct result of the program. Ford, which took none of the auto bailout money, showed its first monthly growth in sales since 2007. Factory orders for new cars are expected to grow as a result of the new demand.

Democrats in Congress originally proposed $4 billion for the program, but GOP resistance shrank it to $1 billion.

In addition to the economic stimulus, government data about the cars traded in and sold under the program revealed that the environmental impact of the program will be important as well.

Some 83 percent of the vehicles traded in under the CARS program were trucks, government officials said, while 60 percent of the vehicles sold were cars. The average fuel economy of the cars involved in this massive trade-in rose from just under 16 miles per gallon to over 25 miles per gallon. The Economic Policy Institute (EPI) estimated that those people who bought new cars through the program will save on average $821 annually on gas.

Reduced gasoline usage will total 22.2 million fewer barrels of oil and 850,000 fewer tons of CO2 pollution each year, EPI estimated. Because of its economic and environmental impact, EPI declared 'cash for clunkers' a success. 'Congress should increase funding and extend the program,' read a recent statement from the economic think tank.

While several Republican Senators have expressed support for the program, other hard-line Republicans have scrambled for a handle on how to oppose the popular and successful program. Sen. Tom Coburn, R-Okla., for example, claimed without substantiation that the program shut down so quickly because of mismanagement. He ignored the fact that his own personal opposition to the program in the first place forced the Senate to reduce the original price tag on the provision.

Coburn then went on to make misleading comments about the program. In remarks on the floor of the Senate Aug. 4, Coburn claimed, 'Farmers who have driven their old pick-ups in years and have them stored in their barns, have gone out and dusted them off and traded them in.' He implied that the program isn't taking old cars off the road and that it is simply a big cash giveaway.

What Coburn should know, if he read the bill or isn't simply trying to mislead people about it, is that the program mandates that trade-ins must have been insured for the last year, that they be 25-years old or less and that they be in driving condition. It seems unlikely that anyone would continue to insure a vehicle they haven't driven in years, as in Coburn's scenario of the typical 'cash for clunkers' participant.