Democrats' Cash for Clunkers Plans Are Bad for Business

By Peter Roff, Thomas Jefferson Street blog

Thanks to the law of unintended consequences, the market for those old, boxy, fuel-inefficient cars that almost no one who doesn't have to buy one wants may soon grow red hot.

An amendment authored by Michigan Democrat Debbie Stabenow is likely to be attached to the tobacco bill now before the U.S. Senate that would provide a cash incentive of up to $4,500 to anyone who trades in a vehicle getting an average of less than 18 miles per gallon for one that gets at least 22 miles per gallon. Similar legislation, offered by Rep. Betty Sutton, D-Ohio, has already been added to the Energy and Commerce Committee's markup of the cap and tax climate bill over on the House side.

They probably mean well—but such a measure, if it becomes law, would only further distort and disrupt the nation's economy, particularly in the automobile sector. And it would be bad for small business.

First of all, the Stabenow-Sutton approach would send folks thinking about buying a car out into the marketplace to look first for an old clunker they could pick up on the cheap and exchange for a voucher. It's an easy few thousand bucks toward the purchase of a new car. The increased demand would, therefore, cause prices in the used car market to increase across the board.

This would be especially true of older, larger models that, while less fuel efficient than those on the road today, are often the only kinds of cars that certain folks—especially the student who works after school, the single working mother, and the first-time newly employed—can afford.

If that were not damaging enough, the Stabenow-Sutton approach would also deal a severe setback to U.S. small businesses, particularly independent garages and other automotive repair shops.

The Automotive Service Association, the largest association for independent automotive repair facilities, says independent repair shops service nearly 75 percent of all vehicles that are out of warranty while most folks that own cars that are still under warranty have them serviced by the dealer who sold them the car.

Every older car the federal payment "incentivizes" off the road means one less customer for the local garage. And one more customer for the dealerships—including those now partly owned by the U.S. government that are Chrysler and General Motors franchisees, if you can find one.

There are, the ASA says, 164,000 independent automotive repair shops across the United States that employ nearly 900,000 people. And there are countless more people who are in the business of manufacturing, selling, and transporting the parts they use every day, from tires to fan belts to alternators to brake shoes, parts that are increasingly less available over time from the manufacturer. The "cash for clunkers" approach threatens their jobs too.

Any way you look at it, what Stabenow and Sutton want Congress to do is a bad trade for America.

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