Get ready for … Cash for Clunkers II?

posted at 3:35 pm on March 29, 2011 by Ed Morrissey

Feel like buying a Chevy Volt?  Probably not, thanks to the steep price tag; the car retails north of $40,000, a high price for a subcompact four-seater.  What you may not know is that you’re already buying Volts, thanks to a tax credit designed to incentivize buyers to select the expensive electric car over less-expensive rivals in its class, a $7500 giveback to push the latest model from Government Motors.  Now Congress wants to speed the subsidy process to make it immediate on purchase:

Ready for another cash for clunkers program? It looks like General Motors is attempting to replace it’s own consumer incentives with tax payer money. The car company, bailed out of bankruptcy in 2009 by the American tax payer, appears to be turning the government into an automatic rebate provider.

The Obama administration and their friends on Capitol Hill are floating around a proposal to change the $7500 tax credit for green vehicles. This change can be found not only in President Barack Obama’s budget but also a bill proposed by Senator Debbie Stabenow, Michigan Democrat.

Edmunds.com, a 45 year old trade magazine company that provides automotive information, posted a Department of Energy document listing the department’s funding highlights. The proposed Obama Budget, changes the existing $7,500 electric vehicle tax credit “into a rebate that will be available to all consumers immediately at the point of sale.”

According to Senator Stabenow’s website, her proposed legislation, known as the “Charging America Forward Act” (S.298), “will provide consumers with a rebate worth up to $7500 for plug-in electric vehicles at the time of purchase.”

While some are calling this Cash for Clunkers 2, as my friend Kerry Picket does in this report, there are a couple of differences.  First, the program does not incentivize trade-ins, only the purchase of the vehicle.  That’s an improvement over the original C4C in at least the sense that it didn’t destroy viable assets.  The 2009 program destroyed cars that lower-income people could have purchased; instead, C4C created an artificial shortage in used cars that pushed prices higher and reduced availability.  Also, this is not a new subsidy, but a new delivery mechanism for an existing subsidy.

That doesn’t make this idea any better.  The Obama administration seems to have belatedly figured out that the people who needed the subsidy to buy the car couldn’t afford to wait several months for the rebate, but it’s still unclear how many sales were actually lost because of that.  Even at $33,000, the Volt is a choice for those with plenty of liquidity.  Thanks to uncertainties over battery life, replacement costs, and disposal, its resale value in the fourth year (when most loans would end) is unknowable, making the Volt a tough sale as an investment for people normally buying at these price points.  People who qualify at the lower price but lacked the cash for the higher price are probably going to look for either more room and features, or for a vehicle with more known qualities, simply because they won’t be able to afford to guess wrong.

This means that the new “Charging America Forward” program does share this in common with C4C: it subsidizes sales that will take place anyway.  It forces taxpayers to foot the bill for the private vehicle choices of others, many of whom can’t afford to buy new vehicles for themselves.  It’s an attempt by Obama and Stabenow to pick winners in a market they don’t understand well as a means to prop up a company that the last two administrations rescued with tens of billions in taxpayer money already, and through a politically-engineered bankruptcy that upended investment law to benefit the unions.

And here’s one last question for the CAF advocates: Just where do you plan to get all of the electricity to charge these cars, anyway?


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