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Congress is moving quickly to pour more gas into the “cash for clunkers” tank, and although the federal rebate program has been immensely popular with car buyers and dealers, some skeptics see economic potholes down the road.
The Senate is expected to vote this week on a bill to triple the program's size, from $1billion to $3billion. The House approved the move Friday, after officials said just one week of clunkermania had all but exhausted the original funds.
Critics in Congress have focused mainly on the program's cost in a time of record federal deficits and on its structure. For instance, in the Senate, where the program barely won passage in June, Sen. Dianne Feinstein, D-Calif., said she'd been assured any extension would narrow the requirements, to force buyers to choose much more fuel-efficient cars.
But behind the legislative debate are critics who foresee pitfalls farther down the highway. Among the concerns they raise:
• Sustainability. Stimulating demand for autos now is borrowing it from the future, when it might be crucial to maintaining an economic recovery.
“This is not like shirts or hamburgers,” said Creighton University economist Ernie Goss. Cars are durable goods for which there is only so much appetite. If that appetite flags later, just as a general recovery is under way, a double-dip recession might result, he said.
The clunker rush last week suggests ample demand but also shows how tricky gauging that demand can be, given that the program was scheduled to run till Nov. 1, Goss said.
Another area economist, Eric Thompson, who directs the University of Nebraska-Lincoln's Bureau of Business Research, agreed that the program amounted to “taking sales from the future and moving them to now.” But he sees strong evidence the economy can persevere.
“Reasonable people disagree about the appropriateness of stimulus,” Thompson said. But if you accept the concept, he said, the clunker program seems like worthy stimulation.
• Mixed signals. Government policy sends cues to the marketplace, and if they are confusing, the response may be too. Goss noted that even as the clunker program encourages trading gas guzzlers for fuel-thriftier cars, an income tax write-off is still offered to buyers of SUVs weighing over 6,000 pounds.
The clunker program also further encourages industries to delay action while waiting on Congress to supply help or set a direction, he said. That is magnified in the automakers' case by the fact that the government itself is now part owner of two of the Big Three, he said.
Government must set economic boundaries, Goss said, “but it shouldn't pick winners and losers.”
• Weaning. Once you start taking stimulus medicine for the pain of recession, how do you stop? critics ask.
Similar car programs in Europe, where they're dubbed “scrappage” plans and have been equally popular, have proved politically difficult to end. Germany began offering cash for clunkers in January and by March had extended the program till year's end and increased funding from 1.5billion euros to 5billion. France's industry minister announced last month that the government would try to phase out its scrappage program. Italy's, begun in 2007, has been extended until 2010.
Government never can get out as easily as it gets in, Goss said. “All these things make me more concerned about 2010 and 2011.”
• Environmentalism. True, the clunker program is designed to swap out gas guzzlers for cars that get better mileage and pollute less — an environmental plus. On the other hand, critics argue, to consign tens of thousands of still-useful cars to the scrap heap while accelerating the production of replacements is environmentally wasteful.
“Conservation?” Goss said. “My mother would have a fit with this, if she were still alive: ‘You're destroying what?' ... You've advanced the product cycle, the purchasing cycle.”
• Unintended side effects. Still other critics describe a grab bag of drawbacks to cash-for-clunker programs: Repair shops that would have worked on the scrapped cars will lose business, a counter-stimulus effect; used car shoppers who might have bought the clunkers, typically people with lower incomes, will find fewer choices and higher prices.
Contact the writer:
444-1140, roger.buddenberg@owh.com
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