CARS.gov And Tesla: US Government Attempts to Encourage Higher Fuel Efficiency

In July 2009, the US government came up with a program aimed at encouraging US residents to purchase more fuel-efficient vehicles. The Car Allowance Rebate System (CARS), colloquially known as Cash for Clunkers, ran for only six months. The program had been funded to a tune of $3 billion. To enable the residents to understand the program better, a website, Cars.gov, was created. The site allowed visitors to post questions about the program so that experts and government officials could provide answers (Source). 

Even though theCash for Clunkers program only lasted for six months, the efforts of the US government to encourage the use of fuel-efficient cars seems to be ongoing. Companies like Tesla have continued to benefit from federal funds and government policies that promote fuel-efficient vehicles. We took some time to revisit the Cash for Clunkers program. We also look at other federal government initiatives that car manufacturers and buyers can still take advantage of to purchase fuel-efficient vehicles at lower prices.  

President Barack Obama signed the CARS into law on 24 June 2009 as a stimulus program that would ensure people, businesses, and the government spend money to boost the US economy. At that time, the world economy was still experiencing the challenges of the 2008 to 2009 financial crisis. Under this program, individuals who agreed to trade in their older fuel-guzzling vehicles were offered between $2,500 and $4,500 for newer, more fuel-efficient ones (Source).   

To determine the effectiveness of the Cash for Clunkers program, the Council of Economic Advisers (CEA) conducted an economic analysis which concluded that the program was a success. According to the figures presented by CEA, car dealerships were able to attract many consumers who would otherwise have put buying a new car on hold because of the financial crisis. This also increased the aggregate demand for fuel-efficient vehicles.

Even though the US government portrayed the Cash for Clunkers program as a success, critics note some challenges. For instance, a group of researchers from Arizona State University conducted a study and concluded that when the government offers significant rebates, consumers do not always act in a manner expected by the policymakers. The researchers also found that the consumers would have preferred the deductions to be lower but given as straight discounts, instead of trade-in refunds (Source). 

Cars.gov was a website created to provide resources for consumers who wanted a better understanding of the CARS Act. The site presented the requirements that a vehicle had to meet to be eligible for rebates and FAQs regarding CARS. It also had a section for questions. The website ran up to January 2012 before it was eventually closed. 

During the time leading up to the launch of the CARS program, the unemployment rate in the US was high. To spur economic growth, the Obama administration focused on assisting manufacturers to boost production and remain afloat. Loans totaling $8 billion were given to manufacturers of fuel-efficient vehicles through the Department of Energy. Tesla Motors received about $465 million. Other beneficiaries included Ford at $5.9 billion and Nissan at $1.6 billion (Source). 

Incentives such as the Tesla Motors tax credits have been shrinking. For example, the technology website, Wired.com, reports that from 1 July 2019, the $7,500 tax rebate offered to individuals buying electric vehicles such as the ones made by Tesla was reduced by three quarters to $1,875 (Source).  

We looked around to identify other federal incentives that manufacturers of environmentally friendly vehicles can take advantage of and identified the following.

The Energy Improvement and Extension Act is a tax credit established by the federal government of the United States to narrow the gap between cheaper vehicles powered by gas and the more expensive ones powered by electrics. This incentive, which is available to all manufacturers, applies only to the first 200,000 vehicles a manufacturer makes.  

According to reports, only two car manufacturers have been able to reach the 200,000 vehicles milestone: Tesla and General Motors. This incentive started at $7,500 and was halved at the beginning of 2019 to $3,500. It was split again in July to $1,875 and will come to an end at the end of 2019.    

Other incentives under the Natural Gas Vehicle (NGV) and Plug-In Electric Vehicle (PEV) Weight Exemption include additional tax credits, registration fee reductions, vehicle or infrastructure rebates or vouchers, vehicle loans, and high-occupancy vehicle lane exemptions. The incentives are meant to encourage people to buy high-occupancy cars, gain tax exemptions, and receive low-cost charging rates. The incentives vary depending on the state where a vehicle is purchased and used (Source).