Streetsblog San Francisco

Rep. Betty Sutton (D-OH) was one of the prime movers behind the economically and environmentally misguided "cash for clunkers" program, but she is switching gears to help save transit in Lorain County, Ohio, where bus service could be canceled in 2010 after voters rejected a sales tax increase to raise operating funds.

The local Chronicle-Telegram newspaper reports that Sutton is seeking approval from congressional leaders for the county to reprogram $1.5 million in unspent stimulus money:

Sutton sent letters this week to David Obey, D-Wis., chairman of the
U.S. House Committee on Appropriations, and Jim Oberstar, D-Minn., who
chairs the U.S. House Committee on Transportation & Infrastructure,
seeking approval for LCT to use $1.5 million in untapped American
Recovery and Reinvestment Act of 2009 funds to operate the bus system.

“We hope new appropriations bills can be OK’d by year’s end that
will let us use this unspent capital money,” Cordes said. “We’re trying
to avert a total shutdown.”

Officials have said it is vital for the county to maintain some form
of public transportation to remain eligible for federal transportation
funds.

The inability of many localities to spend federal aid on transit
operating costs — thus creating jobs for drivers, maintenance workers,
and other day-to-day staff — has left many rail and bus networks
facing punishing service cuts.

Congress agreed
in June to let states use 10 percent of their stimulus grants for
operating assistance, but Sutton’s move could open the door for that
number to increase in the coming weeks.

One of the themes of the financial and economic crisis we’ve faced
over the past two years is that government, pressed into responding to
serious economic pain, has often found itself supporting the activities
that got us into this mess in the first place.

Irresponsible
behavior by banks led them to the brink of collapse — a collapse which
would have sent the global economy into a terrifying period of decline
– and so the government stepped in to prevent bank failures (after
learning a lesson from the dreadful experiment with Lehman). But these
interventions have put banks in a situation where they stand to gain
enormously from taking large and dangerous financial bets.

Similarly, government policies such as low gas tax rates and
import protections on light trucks encouraged the development of a
bloated domestic auto industry focused on the production of inefficient
SUVs.

When high oil prices and deep recession then
threatened to push General Motors and Chrysler into bankruptcy, leading
to hundreds of thousands of lost jobs, the government felt it had no
choice but to step in to keep the companies afloat.

Now the
government owns large stakes in companies that will only profit if the
American public goes car-buying crazy over the next few years.

The
list goes on. The economic crisis that currently afflicts us has made
it clearer than ever that we need to change the way we do many things,
but because the economy is in such difficult shape, it is hard to
pursue anything other than policies designed to keep the economic
engine from stalling out completely. Big transitions must wait for
later.

Can the same be said for sprawling urban development?
Have government interventions essentially bailed out the very places
that proved most vulnerable amid oil shocks and housing busts?

Read more…

Last week, I left my Washington home, walked to the nearby Metro
station, rode a train downtown, walked to the National Press Club, and
settled in to hear Steven Rattner, former head of the Obama
administration’s auto task force, declare that "no one has yet invented
a substitute for the automobile."

This
was like declaring in an airport terminal one’s hope that man may
someday enjoy heavier-than-air powered flight, but most of the heads in
the audience nodded in agreement.

Rattner was there to speak on the topic of the administration’s
automobile bailout and rehabilitation strategy. He was hopeful but
realistic; he recognized that General Motors and Chrysler face an
uphill battle, but he believes that the government was able to do
enough to give the firms a shot at returning to profitability.

Why
that should be a concern of the government is another question
altogether, and it’s not one with which Rattner really engaged.
Understandably, I think, the administration agreed that GM and Chrysler
really shouldn’t be allowed to fail in the depths of recession.

And
then I believe they determined that if they were going to keep propping
up the companies, they ought to at least shepherd them through a
balance sheet-clearing bankruptcy and reorganization, in the hopes that
the companies might eventually make money.

But what Rattner
was careful not to address was this: Saving the car companies will not
protect American automakers’ market share, will not save the city of
Detroit, and will not really save that many jobs.

The line I
quote in the first paragraph was made in the context of an argument
about annual auto sales, and why sales totals are likely to return to
levels typically observed before the recession. Sales of light vehicles
grew to a peak of 17 million in 2005 before declining and then
plummeting to their current level, in the neighborhood of 9 million
(save for the month of August, thanks to "cash for "clunkers).

According
to Rattner, GM will break even at a level around 16.5 million car
sales. Maybe we’ll get there. Population continues to grow.

On
the other hand, households may find themselves holding on to
automobiles longer (particularly since household debts may remain a
problem for the next decade). They may also find themselves buying
fewer cars. America is aging, and households with retirees may not want
a car for each commuter. More families might opt for one vehicle, and
use car-sharing services when another vehicle is necessary.

But
now we find ourselves in a world in which GM shareholders — among
which number you and me and every other taxpayer — need sales to move
above 16.5 million to get the company back to profitability. That’s a
strange place for us to want to be.

Read more…

One thing the government’s CARS program — a.k.a. "cash for
clunkers" — has clearly stimulated is commentary. For a policy
involving a shade under $3 billion in federal spending, it has enjoyed
no shortage of media coverage.

In
part this is because the program looks like a big success, and
certainly congressional leaders and the White House have not been
bashful about touting it as such. The original $1 billion allocation
for the program was exhausted within days, and as sales data for August
begins to emerge it is clear that car sales experienced a banner month.

Was CARS a good policy, all things considered? Let’s look at a few of the latest numbers on the program.

There
were approximately 1.17 million vehicle sales in August, which works
out to a seasonally adjusted annual rate of about 14 million vehicles.
June’s sales rate was under 10 million and near the recession low,
while last August’s rate was also about 14 million. Meanwhile, the
August norm in good times was about 16 million.

What does
that say about the value of the program? Well, let’s say that August
sales would have matched June’s sales in the absence of CARS. They
almost certainly would have been higher given economic improvements
between June and August, but for argument’s sake, let’s say they were
the same. We can then estimate how many additional sales CARS produced
and the actual subsidy per new sale.

Here‘s economics blogger Calculated Risk:

If Edmonds.com is correct,
and total sales were 1.17 million…in August, then the tax credit
only generated about 320 thousand extra sales. Of course some regular
car buyers might have put off a purchase to avoid the rush in August,
so this isn’t perfect, but instead of costing taxpayers $4,170 per car
(as announced by DOT), the cost to taxpayers per additional car sold
was close to $7,200.

In other words, CARS just didn’t generate that many new sales. Much of the subsidy went to buyers who would have purchased anyway.

As
it turns out, much of the subsidy also went to people who weren’t
interested in purchasing GM or Chrysler vehicles. While year-over-year
sales figures rose in August for Ford, Honda, and Toyota, sales declined by
15 percent and 20 percent respectively for Chrysler and GM. To the
extent that CARS was designed to help struggling American automakers,
it doesn’t seem to have had the desired effect.

Particularly worrisome is today’s report
that sales fell precipitously in the last week of August — after the
CARS program ended. Rather than generate momentum for the automobile
industry, CARS may have primarily moved sales around. To a certain
extent, it might also have been counterproductive. How so?

Read more…

When Congress tripled the size of the "cash for clunkers" program in July, both Congress and the White House
billed the $3 billion program as a boon for struggling domestic
automakers. But when those Detroit car companies released sales figures
today, the numbers didn’t quite match up to the hype.

General
Motors and Chrysler, which required a combined $65 billion in
government loans before declaring bankruptcy, reported August
year-to-year sales declines of 20 percent and 15 percent, respectively.

Detroit media reports focused
on GM’s 30 percent sales increase between July and August 2009, but the
company’s car sales were down 1 percent even after being "bolstered" by
the taxpayer-funded "clunkers" rebates.

Ford, the lone U.S.
automaker that did not require a government rescue, reported a 17
percent year-to-year sales increase in August. As the New York Times
reported, the company was pleased by one sales jump in particular:

At Ford, sales of the F-series, a large pickup truck popular among
building contractors, rose for the first time since October 2006, a
positive sign for the automotive market and the broader economy, the
company said. Ford sold 13 percent more of the F-series and 57 percent
more of a smaller pickup, the Ranger.

“It may be a glimmer of
hope,” Ken Czubay, Ford’s vice president of marketing, sales and
service in the United States, said on a conference call.

The F-150, the most well-known of the F-series trucks, gets an average of 16 miles per gallon (mpg) of gas. The Ranger gets between 16 mpg and 23 mpg, depending on the engine and transmission. "Glimmer of hope," indeed.

The U.S. DOT began signaling yesterday that it would bring the "cash for clunkers" program to an end amid growing unease from auto dealers about the government's slow pace of reimbursement and General Motors' decision to begin fronting "clunkers" repayments to its own salesmen.

But with auto-industry forecasters predicting a cool 1 million new sales this month for the first time in a year, dealers are loath to abandon the "clunkers" concept that has stoked Americans' desire for new vehicles -- with minor fuel-efficiency gains and expensive environmental payoffs.

A group of auto retailers have begun promoting the "Auto Stimulus Plan," a rebate system paid for by dealers themselves.

The private "clunkers" spinoff offers several features that the government plan was criticized for lacking. It allows consumers to buy used cars, and its rebates are tiered in proportion to the level of fuel-efficiency improvement that is achieved by the trade-in.

The specifics of the Auto Stimulus Plan vary based on state regulations. But a trade-in that provides 2 miles per gallon in greater fuel-efficiency would earn a rebate of 10 percent of the older car's value, and a 5-mpg improvement would earn a 20 percent rebate, according to a recent Associated Press report.

Unlike the Obama administration's "clunkers" program, which was questionably touted by the president and his allies as a boon for the environment, dealers involved in the private version make no bones about their priorities.

"[O]ur primary goal is to help consumers that don't qualify for the government's program and to stimulate the economy through improved sales, jobs, and spending," Scott Gruwell, an Arizona-based GM dealer, said in a statement today announcing that the Auto Stimulus Plan would continue despite the demise of the "clunkers" plan.

The Obama administration plans to close the door on the politically popular and environmentally slipshod auto trade-in program known as "cash for clunkers," according to a report this afternoon in the Wall Street Journal:

Transportation Secretary Ray LaHood said Wednesday he would disclose
within two days updated figures on the program, including how much of
the $3 billion in funding was left. He said he would also offer a
blueprint for how the administration will wind down the program to
ensure all vouchers issued by dealers are reimbursed by the government
before the money runs out.

"They’re going to get their money," Mr. LaHood said, responding to
dealers’ complaints of payment delays. "There will be no car dealer
that won’t be reimbursed."

Auto
dealers have submitted claims to about $1.8 billion of the program’s
taxpayer-funded rebates, which represents 435,102 vehicle purchases,
according to data released today by the U.S. DOT.

The White House’s commitment to electrified cars, fulfilling an Obama campaign promise to put 1 million plug-in hybrids into service by 2015, is bound to have serious ramifications for the nation’s already-crumbling system of paying for transportation.

But
could the administration continue to leave the gas tax untouched while
relying on taxpayer-subsidized rebates to gin up new car sales? That
prospect is a very real one, as two new posts from the Atlantic and the New Republic observe.

The
first post focuses on the government’s plug-in hybrid tax credit, which
was expanded by the economic stimulus law to offer up to $7,500 per
vehicle for the first 200,000 models sold by every automaker.

The
Atlantic incorrectly states that the stimulus allocated $2 billion to
the credit — that number is the estimated cost of the provision, which
has no dollar limit — but the risk remains the same: If GM sells
200,000 of its Chevy Volts, the credit would take $1.5 billion in revenue from government coffers.

If similar successes for the Nissan Leaf
and the upcoming plug-in Toyota Prius follow, it’s easy to see the cost
of the tax credit topping $4 billion. And as "cash for clunkers" showed,
members of Congress are loath to limit popular pro-industry programs
during an economic slowdown for fear of "messing with success" –
regardless of the estimated costs of the benefits in question.

That could lead to an extension of the plug-in hybrid credit to continue stimulating sales, at a continued cost to the already-depleted Treasury. Meanwhile, the less popular option of increasing the gas tax would immediately pay for itself (as my colleague Ryan put it earlier).

The New Republic’s post looks at a still-unpassed proposal for "feebates,"
a combination of taxes on gas-chuggers and rebates for buyers who
choose cars that exceed fuel-efficiency standards. Again, feebates
follow the "cash for clunkers" template by using taxpayer money — the
fees are not guaranteed to offset the rebates and likely wouldn’t if
drivers flock to efficient models — to encourage greener car-buying
behavior.

But even if an "independent mileage benchmark" were used to ensure that the feebates pay for themselves, as the author suggests,
the more prudent course of action would be simply to keep raising
fuel-efficiency (CAFE) standards. Given that a proposal for a 40 miles
per gallon standard fell three votes short of becoming law 20 years ago, the current 35.5-mpg plan appears ripe for an upgrade.

The
issue comes down to political courage: Offering rebates and tax credits
doesn’t require much of it, but raising the gas tax and CAFE standards
takes quite a lot.

A $2 billion renewal of "cash for clunkers" is now almost assured, with GOP senators easing up on their threat of a filibuster and one key Democrat remarking that "the statistics [for the program] are much better than everyone thought."

But if the "clunkers" data is so successful, why won’t the U.S. DOT release it in full? From the AP:

The Obama administration is refusing to release government records
on its "cash-for-clunkers" rebate program that would substantiate — or
undercut — White House claims of the program’s success, even as the
president presses the Senate for a quick vote for $2 billion to boost
car sales.

Transportation Secretary Ray LaHood said Sunday the
government would release electronic records about the program, and
President Barack Obama has pledged greater transparency for his
administration. But the Transportation Department, which has collected
details about 157,000 rebate requests, won’t release sales data that
dealers provided showing how much U.S. car manufacturers are benefiting
from the $1 billion initially pumped into the program.

Some initial numbers
on "cash for clunkers" have been circulating widely in Washington as
the White House prods senators to approve the $2 billion infusion
before leaving town this weekend for a month-long recess.

Yet only about half
of the 250,000 auto sales attributed to the program have been processed
so far, according to lawmakers, casting doubt on the definitiveness of
the data.

The non-profit watchdog group Public Citizen filed a
Freedom of Information Act request today seeking more detailed numbers
on "clunkers" sales. As Streetsblog Capitol Hill reported yesterday,
the DOT is also declining to release details on the deal it signed with Citigroup, beneficiary of a $45 billion government bailout, to help process "clunker" deals.

What’s no secret, however, is LaHood’s ideal choice of a new car. "I have my eye on an Explorer, four-wheel drive," he told MSNBC yesterday. The 2010 Explorer 4WD gets a combined 16 miles per gallon — barely qualifying it for the "clunkers" program.

As debate rages on in the capital over whether to keep assisting the auto industry by giving out more "cash for clunkers" rebates, two assertions are becoming commonplace: the program is helping diminish U.S. oil consumption, and the program is not paid for with new money.

The first argument was reiterated on Friday by President Obama, who said of the "clunkers" auto trade-in discounts: "This gives consumers a break, reduces dangerous carbon pollution and our dependence on foreign oil, and strengthens the American auto industry."

That same day, however, energy analysts were crunching the numbers for Reuters. Even if $2 billion in new "clunker" rebates were offered, they found, the total resulting decline in America's daily oil consumption would be 0.05 percent:

"It has proved to be a highly successful vehicle marketing tool," said Tim Evans, energy analyst for Citi Futures Perspective in New York. "But you would need a microscope to see the demand impact for gasoline from this program because it involves a relatively small number of vehicles."

The Reuters estimate assumes an average upgrade in fuel efficiency of 10 miles per gallon, which is in line with initial auto industry statistics on new trade-ins.

The analysis also assumes 250,000 trade-ins, which the government estimates is roughly the number that took place during the first $1 billion week of the taxpayer-subsidized "clunkers" program. Given the likelihood of new funding for the rebates, however, that 0.05 percent number could double or triple -- for a total daily oil-consumption reduction of 0.15 percent.

The second argument, that offering $2 billion in extra "clunkers" cash would not amount to deficit spending, stems from Democratic leaders' decision to shift the funds over from a Department of Energy (DoE) loan guarantee program.

That strategy was designed to appeal to fiscal hawks who would have a difficult time voting to add to the already trillion-dollar federal deficit. Indeed. Sen. Claire McCaskill (D-MO) already put her leaders on notice (via Twitter) that she could only vote yes on "clunkers" if no new money was spent.

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