Consider two facts. First, it takes about 20 years for all vehicles on the road today to be replaced with newer, more efficient cars. That turnover rate could become even longer, because the economic downturn has left fewer people able to trade in older cars for newer vehicles, especially hybrids, diesels and some high-mpg gasoline options.
And second, the most polluting cars on the road are the oldest. A study from California estimates that cars 13 years or older account for 25 percent of the miles driven—but 75 percent of pollution from cars. Officials from Texas say those clunkers spew 10 to 30 times as much pollution as newer cars.
Put the two facts together, and you can see why a handful of states—including California, Texas, Colorado, Delaware, Illinois, and Virginia—have started “Cash for Clunkers” programs. Texas offers as much as $3,500 for low-income consumers to ditch their clunkers and buy a new car. California gives $1,500 to help retire vehicles that fail emissions tests. And beginning in 2009, Canada will use a similar strategy to remove 50,000 clunkers from Canadian roads.
Alan Blinder, a professor of economics at Princeton, would like the United States to launch a similar program on a national basis. His idea is for the government to set above-market buying prices—say 20 percent higher than Kelly Blue Book values—for vehicles older than 15 years, and make those attractive prices available to families with an income below $60,000. The worst gas-guzzlers might receive an extra premium. The government would buy the vehicles—and sell them to licensed recyclers, scrap them, or retrofit them with emissions controls before putting them back on the market.
Besides removing the most polluting cars from the road, there are two other compelling reasons for a Cash for Clunkers program, according to Binder. Because most clunkers are owned by low-income people, a government buy-back program would transfer purchasing power to the poor—like an economic stimulus program on wheels. Recipients would have more cash in their hands, which they could spend as they see fit. He estimates that a national program would cost somewhere between about $8 billion and $20 billion—much cheaper than the $168 billion stimulus package enacted in February.
The other benefit, according to Binder, is to give the ailing auto industry a “shot in the arm.” Auto sales in 2008 are at a 20-year low. The Cash for Clunkers program could scrap 2 million old cars a year, and encourage those drivers to trade up to new models.