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Cash for clunkers means more money for taxpayers

April 3, 2009

We're all in the car business now. Taxpayers have pumped $17.4 billion into General Motors and Chrysler in recent months. So it's a good idea for Washington to help the automakers sell some cars.

A new tax break and President Barack Obama's pledge to back the ailing automakers' new-car warranties should help. But "cash for clunkers" legislation, which Congress is considering, would have an even broader impact.

Cash is a powerful incentive for consumers to buy cars. And by paying to take gas-guzzling polluters off the road, the bill would help curtail the nation's oil habit and reduce air pollution.

The program would insinuate the government even deeper into the private sector, which is worrisome. But similar plans are in place in Germany and other European counties, with good results. And extraordinary economic woes call for out-of-the-ordinary responses.

Walloped by recession and tight credit, car sales are off across the entire industry. Despite record manufacturer incentives averaging thousands of dollars per vehicle, sales in the United States in March were down 37 percent from the same month a year earlier. GM sales were off 45 percent in March; Chrysler's 39 percent.

Taxpayer bailouts can keep the companies alive - for a while. But the ballgame, ultimately, is selling more cars. If the companies do that, they'll have a fighting chance to survive. If they don't, then the public's costly lifeline will merely delay their demise.

Washington has already taken some steps to bolster flagging demand. People who buy a vehicle between Feb. 16 and the end of the year may be able to deduct the cost of sales and excise taxes when computing their federal income tax.

The federal government, with its massive fleet of 1.8 million vehicles, is using stimulus funds to accelerate its regular auto purchases. The Treasury Department has initiated a plan to make auto loans easier to obtain.

And last week - while giving GM and Chrysler just weeks more to produce acceptable restructuring plans - President Barack Obama assured consumers that the United States government would stand behind the automakers' new-car warranties. That should nudge some potential buyers off the sidelines by responding to their misgivings about resale value and the availability of parts and repairs should one or both of the companies go bankrupt.

Lawmakers should add cash for clunkers to that list of demand-producing initiatives. The better of two competing House proposals is the Accelerated Retirement of Inefficient Vehicles Act, sponsored by Rep. Steve Israel (D-Huntington). While details are sure to change as the proposal makes its way through Congress, here's the basic outline of how the temporary program would work:

You qualify if you agree to scrap a car that's registered in the United States, is drivable and was rated at 18 miles-per-gallon or less when new. Depending on the age of your clunker, the age of the newer vehicle you buy and the miles per gallon it gets, you would get a voucher from a scrap yard or auto dealer worth $1,500 to $4,500 toward your purchase - or to use for mass transit fares.

The vehicle you buy would have to be a 2004 or newer model, cost less than $45,000 and get at least 34 miles per gallon. If it gets 42 miles per gallon or more, then Washington would throw in an additional $1,000.

With a target of 1 million subsidized auto purchases a year, the plan would cost $1 billion to $2 billion. And since a handful of governors around the country have refused to take some of the money available from the stimulus bill, Sen. Charles Schumer (D-N.Y.), co-sponsor of the Senate clunker bill, has proposed using that money - about $1.6 billion - to pay for the program. It's a good idea.

The $787 billion stimulus bill was enacted to create and save jobs. And jobs that have been fast disappearing at auto factories, car dealerships and parts suppliers across the country certainly qualify. Right now, what's good for the auto industry is good for taxpayers.

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