Senate Approves Budget Increase for Cash for Clunkers Stimulus Program

On Thursday, the US Senate approved a bill allocating an addition $2 Billion for the Cash for Clunkers program. President Obama is expected to quickly sign the bill into law, so the stimulus program can continue.

The Cash for Clunkers program is designed to provide an incentive for Americans to trade in their older car for a new more fuel efficient vehicle. The incentive program offers $3,500 or $4,500 for vehicles that have a 4mpg or 10mpg increase in fuel efficiency respectively. As part of the Cash for Clunkers incentive program, the trade in vehicle must be destroyed.

The bill that was passed in the Senate yesterday comes a week after announcements that the budget for the Cash for Clunkers program had been expended. The US House of Representatives quickly passed a bill the following day, allocating an additional $2 Billion. This bill was passed by the Senate a week later, with a vote of 60 to 37.

While there are some legislators that are very critical of the Cash for Clunkers program, it is hard to say that it has not stimulated the economy. It is estimated that more than 250,000 new cars have been bought so far as part of the stimulus program. This has a very big impact on new car dealers, but it also helps out many other industries, including scrap yards and metal recyclers.

The scrap yards are not able to use the engine of a car traded in as part of the Cash for Clunkers program, because the engine must be destroyed. However, they can recycle the other parts on the car to sell them used. The rest of the vehicle is subsequently recycled for scrap metal.

While the Cash for Clunkers program does offer a number of real time benefits, both for new car owners and for new car dealers, it also will have a very big long term effect.

A 4mpg Increase is Nothing to Scoff At

Each of the new cars purchased as part of the incentive program must at least have a 4mpg increase in fuel efficiency. Since the trade in vehicles are essentially decommissioned and taken off the road, this means that this program significantly increases our overall fuel efficiency. Over the course of five or ten years, this will account for greatly reduced gas consumption.

When considering vehicle gas consumption and fuel efficiency, it might be easy to think that 4mpg is an insignificant number, but this is not necessarily the case.

To put this in perspective, take a car that gets 15mpg and a car that gets 30mpg. If each of these cars are driven 10,000 miles they will use approximately 667 and 333 gallons of gas respectively.

An increase of only 4mpg to 19mpg and 34mpg, will have a much larger effect on the low gas millage car than the less fuel efficient car. The 19mpg car will use almost 141 fewer gallons of gas every year, while the 34mpg will only use 39 fewer gallons of gas.

As a result, increasing fuel efficiency by 4mpg in our less fuel efficient vehicles will have a very big impact on our gas consumption as a country.