The long awaited “Cash for Clunkers” bill recently passed through the upper house of Congress as an attachment to a war spending bill. As written, the bill will provide vouchers to car owners who turn in a vehicle that gets less than 18 miles per gallon for one that achieves at least 22 mpg, according to the mileage efficiency ratings that were determined by the Environmental Protection Agency. Business Week carried an article stating that the legislation would cost $1 billion dollars and may have the unintended side effect of spurring purchases of gas guzzling SUVs. For those cars or trucks (with a model year of 1984 or later) turned in that satisfy the requirement stated above, owners will receive a $3,500 voucher. The amount increases to $4,500 if the new vehicle being purchased has a mileage efficiency of at least 10 mpg greater than the “clunker”.

According to the Washington Post,

the new car or truck must get better gas mileage than the one that was scrapped. . . . Several other countries, such as China and Italy, have offered similar trade-in vouchers. And lawmakers point to the success of Germany’s program as indication that vouchers can turn dismal auto sales around. At the end of the program’s first month, sales in Germany were up 21 percent from a year before. During the same period, U.S. sales slumped 41 percent.

The article also states that cars must have been registered and insured for at least one year in order to be eligible for the program. President Obama is expected to sign the bill into legislation, as he has long pushed for such a measure.

Hopefully this legislation will have the dual effect of stimulating car sales in a slumping economy and, more importantly perhaps for the second green revolution, spur sales of efficient vehicles, whether hybrid or those that get a high mile per gallon rating. With last month’s planned increase in Corporate Average Fuel Economy (CAFE) standards, perhaps the “Cash for Clunkers” bill will combine with the CAFE legislation and rising gas prices to convince consumers that efficient vehicles are a smart investment.

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