The Biden Administration is setting a goal that half of all new car sales by 2030 be electric vehicles. Many automakers have pledged to back that goal and there are commitments to add 500,000 charging stations nationally as part of infrastructure legislation.
What’s missing though, is a program to either extend or expand current electric vehicle tax credits or create a mechanism to get the public to trade in their old cars for new EVs. If the industry falls short in meeting its goal of every other sale being an electric car, momentum may grow for a Cash for Clunkers program similar to a previous program that used federal incentives for owners of older cars to trade them in on new models.
Cash for Clunkers is shorthand for the Car Allowance Rebate System. This government incentive program passed in response to the 2008 recession to spur auto sales. The plan gave participants up to $4,500 for their old running vehicles (cash for their clunker). The money would be used to purchase a more fuel-efficient new or late-model used vehicle. The program ran from July 1 to August 24, 2009, distributing some $3 billion.
A new version of the program was proposed last year by Sen. Charles Schumer (D-NY). It targets older internal combustion vehicles in favor of zero-emission electric cars. It would earmark $392 billion towards replacing 63 million cars and trucks, or about 25-percent of the current U.S. fleet, with EVs. However, this proposal is not part of the infrastructure bill currently under consideration.
The original program that ran in 2009 gave new vehicle buyers vouchers of $3,500 to $4,500. The payments went towards scrapping vehicles up to 25 years old that were still licensed and in running order. The idea was to scrap older, less fuel-efficient vehicles for new models with better fuel economy.
The program succeeded in stimulating the market and removed some 700,000 vehicles from the road. But critics said that it unnecessarily scrapped cars that low-income motorists could have used. And according to Kelley Blue Book data, the reduction in the vehicle population resulted in higher used car prices.
To be eligible for the original Car Allowance Rebate System, a vehicle had to be less than 25 years old, in running condition, and have an EPA fuel economy rating of less than 18 mpg. The program also required that the vehicle be turned into the dealer for disposal. That process included rendering the engine inoperable, and having the body either crushed or shredded.
The replacement vehicle needed to have an EPA rating of more than 22 mpg. Replacement trucks with an EPA rating of more than 18 mpg and earning an additional 2 mpg got $3,500. If it earned 5 mpg more, the top $4,500 credit would apply. Heavy-duty trucks had to meet a 15 mpg minimum rating, get 16 mpg for the $3,500 payment, or at least 17 mpg for the full $4,500 amount.
Unlike the previous program, which was designed to spur a recovery in a market that saw a sales collapse of 40 percent, the new effort is an environmental initiative. The goal is to spur sales of electric vehicles, which currently account for about 2 percent of the vehicle fleet. While car sales fell dramatically last year due to COVID-19 shutdowns, demand quickly snapped back to pre-pandemic levels. However, a shortage of vehicles from production cutbacks due to the coronavirus and a microchip shortage is actually helping bring profits to the industry on higher vehicle prices.
While the infrastructure bill focuses on building 500,000 new charging stations, the push to extend the current $7,500 federal EV tax credit is stalling out. Proponents want to raise the per manufacturer cap from 200,000 to 600,000 units. Currently, Tesla and General Motors no longer offer the credits having exceeded the volume threshold. The incentive would drop to $7,000 and convert to a direct rebate going to the transaction.
Here’s where elements of the Schumer proposal would apply. It would funnel additional money to those trading in a gas vehicle at least eight years old. This incentive would start at $3,000 and ramp upwards based on the range of the new electric car purchase. There would also be an additional $2,000 available to lower-income families. That incentive would be capped at twice the federal poverty level. However, we may not see these incentives until it because clearer that the industry won’t hit that 2030 50 percent EV-sales goal.
Those promoting a new Cash for Clunkers program believe it would stimulate the market. But more important, its focus on electric vehicles would hasten the transition away from traditional internal combustion engines. The extra money may eliminate the current price differential between more expensive EVs and lower-priced conventional cars. Eliminating these vehicles would cut emissions and boost the overall fuel efficiency of the U.S. fleet.
While the program is a way to get older, less fuel-efficient, and less safe vehicles off the road, cons see it as scrapping perfectly good, low-priced vehicles that low-income individuals can use. It would also raise the prices of used vehicles when these prices are reaching all-time highs. In fact, many of the eligible cars may be worth more than what the government wants to pay to scrap them. There are also concerns that the auto industry’s EV capacity and the nation’s charging infrastructure may not be mature enough to support replacing 25-percent of the vehicle fleet in such a short period.
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