H.R. 2751: Consumer Assistance to Recycle and Save Act

H.R. 2751

Consumer Assistance to Recycle and Save Act

Date
June 9, 2009 (111th Congress, 1st Session)

Staff Contact
Communications

Floor Situation

The House is scheduled to consider H.R. 2751 on Tuesday, June 9, 2009, under suspension of the rules, requiring a two-thirds majority vote for passage. H.R. 2751 was introduced on June 8, 2009, by Rep. Betty Sutton (D-OH) and referred to the Energy and Commerce Committee, as well as the Committee on Ways and Means. Neither committee took any official action.

Bill Summary

H.R. 2751 would establish a new $4 billion program for the Secretary of Transportation to provide vouchers to offset the purchase or lease of a new vehicle upon the trade-in of a less fuel-efficient used vehicle.  The program, known as the "Cash for Clunkers Temporary Vehicle Trade-in Program," would be established within the National Highway Traffic Safety Administration. 

Voucher Program:  The bill would establish a program to issue electronic vouchers between $3,500 and $4,500 to offset the purchase of a new vehicle upon the trade-in of a vehicle with less fuel efficiency.  H.R. 2751 would require the Secretary to register dealers into the program and require all registered dealers to accept vouchers as a partial payment or down payment for the purchase of a qualifying automobile.  The dealer would also be required to transfer each eligible trade-in to an entity for disposal.  The Secretary would then make an electronic payment to the dealers.

Voucher Qualifications:  Under the legislation, vouchers would be issued at a value of $3,500 or $4,500, based on the fuel-efficiency of the new automobile as compared to the trade-in.

$3,500 vouchers would be issued if:

  • The new automobile is a passenger vehicle with fuel economy that is at least four miles per gallon higher than the trade-in.
  • The new automobile is a category one truck with fuel economy that is at least two miles per gallon higher than the trade-in.
  • The new automobile is a category two truck which gets at least 15 miles per gallon and has a fuel economy that is at least one mile per gallon higher than the trade-in.  This would also apply to a category three truck from model year 2001 or earlier.
  • The new automobile is a category three truck and the trade-in vehicle is a category three truck from model year 2001 or earlier.

(Category one trucks have a weight of 6,000 pounds or less, category two trucks have a weight of between 6,000 pounds and 10,000 pounds, and category three trucks weigh between 10,000 pounds and 14,000 pounds.)

$4,500 vouchers would be issued if:

  • The new automobile is a passenger vehicle with fuel economy that is ten miles per gallon higher than the trade-in.
  • The new automobile is a category one truck with fuel economy that is at least five miles per gallon higher than the trade-in.
  • The new automobile is a category two truck which gets at least 15 miles per gallon and has a fuel economy that is at least two miles per gallon higher than the trade-in.

Limitations:  Under the bill, no more than one voucher could be issued to a single person or the joint registered owners of a single vehicle.  Only 7.5 percent of all funds made available could be used to supply vouchers for category three trucks.  H.R. 2751 also prohibits dealers from charging any fees in association with the voucher program.

Disposing of Trade-Ins:  The bill would require dealers to accept the trade-in automobiles on behalf of the U.S. government and arrange for the transfer of any trade-ins to an entity that will dispose of the car by crushing or shredding it.  The trade-in may not be, sold, leased, exchanged, or otherwise disposed.  The entity responsible for crushing the automobile may sell parts from the car other than the engine block and drive train.

Regulations:  H.R. 2751 would require the Secretary of Transportation to develop regulations within 30 days to carry out the voucher program.  Among other things, the regulations would have to provide a dealer registration and reimbursement process, and provide for enforcement and penalties for any fraud or violation of the regulations.  The bill would provide for a civil penalty of up to $15,000 for each violation.

Information:  The Secretary, in consultation with the Environmental Protection Agency (EPA), must create a website within 30 days with information about the program for consumers and dealers.

Database:  The Secretary would be required to maintain a database of vehicle identification numbers of all the new vehicles purchased or leased through the voucher program, as well as all the trade-in vehicles that are disposed of.

Treatment of Payment:  A voucher would not be considered as income for the purposes of determining eligibility for any federal or State benefit or assistance or for the purpose of assessing taxes. 

Period of Eligibility:  Vouchers created by this legislation would apply to the purchase of any qualifying new vehicle between the date of enactment and one year after the Secretary of Transportation promulgates rules regarding the voucher.

Authorization:  The bill would authorize $4 billion to carry out the voucher program.  The total number and value of vouchers issued under the program could not exceed the amounts appropriated.

Background

Over the past 18 months, automobile sales in the U.S. have been on a sharp decline. Car sales in May, 2009, were down anywhere from 24 to 46 percent from the same month last year for the five largest auto companies in the U.S. Since last year, the U.S. government has spent billions to help keep the troubled auto companies afloat. In December, the Bush Administration used funds from the Troubled Asset Relief Program (TARP), which was originally designed to purchase troubled financial assets, to make $24.8 Billion in loans to GM and Chrysler in an effort to help the faltering companies. In an effort to help boost car sales, H.R. 1, the so-called "stimulus" bill, included a provision that allows individuals to deduct any State tax on a car purchase this year from their federal income tax liability.

None of these government efforts, however, were enough to stave-off bankruptcy proceedings for Chrysler and GM. On May 28, 2009, the Obama Administration announced that the U.S. government would provide $30 billion to GM in a new bankruptcy deal, in addition to the $19.4 billion that the U.S. already provided the struggling company. As a result of the deal, the government will now have an initial holding of 72 percent stake in GM, while bondholders will have about 10 percent of the company's equity. On June 1, GM, after stating in October, 2008, that, "Bankruptcy protection is not an option GM is considering," filed for bankruptcy under the Administration's arrangement.

Likewise, Chrysler was forced into bankruptcy through a government arranged deal that would force an alliance between the automaker and the Italian car company, Fiat. Under the government's plan, the United Auto Workers (UAW) would take over a majority of the company, with Fiat and the U.S. government stepping in as junior partners. The plan called for the U.S. to pour $8 billion into Chrysler, on top of the $4 billion the company had already received. The government-arranged sale of the company was thoroughly condemned by Chrysler's credit holders, who would have lost their majority credit stake for no other reason than the Administration, the UAW, and Fiat, came to such an agreement. On June 8, 2009, Supreme Court Justice Ruth Bader Ginsburg granted a stay on Chrysler's sale to Fiat. The matter now waits until the Supreme Court decides whether to hear the case of three pension funds that were invested in Chrysler and were among the bondholders that lost control of the company in the government's deal.

In response to the turmoil in the auto markets, supporters of H.R. 2751 suggest that the "Cash for Clunkers" legislation would boost new automobile sales in the U.S. By offering a federal voucher to anyone who trades in a less fuel-efficient car for a new one, proponents of the legislation argue that the bill will increase car sales and help struggling car manufacturers. While the bill does not require the voucher to go towards a domestically manufactured car, proponents believe the bill will dramatically help the Big Three by pouring $4 billion of government incentives into the market. Supporters of the bill also tout the environmental effects of the legislation. By requiring that vouchers be used on more fuel efficient cars, supporters say that the program would take older, inefficient cars off the road.

Opponents of the bill, however, have argued that the legislation merely represents another costly program directed at what are essentially government-owned car companies. They say that the bill could have a number of unintended market consequences. Many argue that the voucher would amount to nothing more than a $4 billion subsidy to prop up auto manufacturers, many of which have already received billions in taxpayer money. Others suggest that by granting vouchers only for the purchase of new cars, and not more fuel-efficient used cars, the bill makes it difficult for low-income families to take advantage of the voucher. Indeed, some argue that the voucher will have the adverse consequence of driving up demand for older, cheaper cars that can be used for trade-ins, thereby pricing poor families out of the transportation market. Driving up the cost of affordable transportation in the midst of a recession could be devastating to working families. Others have said that the one-year program--combined with the mass closings of many domestic dealerships--will create an artificial new car market which may temporarily increase car sales, but will dip and flat-line again when the $4 billion taxpayer subsidy expires. Some have also opposed the bill because its requirement that trade-ins be crushed would take restorable cars and parts out of the market.

Cost

A CBO score for H.R. 2751 was not yet available. However, the legislation would authorize $4 billion to provide vouchers for the purchase of new cars.