Fighting the urge to title this post "elect math to Congress."
You know when something seems to be too good to be true? Trade in your old gas guzzler, and get some money from the Feds towards the purchase of a new car. Sounds pretty cool to me, but what I don’t understand is all of the conflicting justifications for it—environment, reduced consumption of foreign oil, economy boost, increased safety in vehicles on the road, and the list goes on and on. When do you suppose was the last time that any government program simultaneously served so many purposes.
Furthermore, with so many purposes, what actually is the main purpose?
I’ve done some investigating—first by looking at who opposes Cash for Clunkers. Used car dealers (who are just as hard hit as new car dealers, but now can’t compete for sales and can’t gain access to the used cars that are being traded in), charities who are missing out on the “donate your car” opportunities, and auto repair shops. There’s another argument against cash for clunkers—advocates for the poor who argue that they have no advantage from this package as they often don’t have a car that qualifies and are now seeing prices on used car lots go up as demand sinks and access is further limited by the “crunching” of the clunkers (all turned-in “clunkers” must be destroyed and cannot be reused as a vehicle).
Now, I’ve got to fall back on that old time truth-teller. Math.
Without even considering the newly approved 2 Billion dollar package, I’ll just examine the first, to see if this truly is an ecological and economical buoy.
I can’t help but wonder about the 158.9 million gallons that this first group of new cars is supposed to save. This is presuming an average 166 gallon annual savings for each of the 240,000 cars traded in under the program. This is a total of 39,840,000 gallons a year, which is doubtless impressive. (source)
Now, I can’t help but wonder how many gallons of oil it takes to produce a new car. I researched and it takes 27 barrels of oil, or 1142 gallons of oil to produce a new car including the petroleum to create and machine the parts, the energy costs, etc.
So, more math. 1142 gallons of oil times 240,000 equals 274,080,000 gallons of oil to create the new cars.
Granted, cash for clunkers will save the 40 million gallons of oil per year, so eventually the energy cost of producing these new cars will be recouped. In six and a half years. According to Herb Wisebaum, (source) the average new car will last about eight years.
So, at one and a half years of new efficiency in these cars, we should expect to see 60 million gallons of oil saved! That’s great, and will certainly reduce our dependence on foreign oil. We import 5.394 Million barrels of oil from OPEC every day (source) which works out to about umm….5,394,000 x 1142 (gallons per barrel) = 6 159 948 000 imported gallons per day.
So, ultimately, after eight years of these new cars being on the road, we’ll be saving about fourteen and a half minutes worth of dependence on foreign oil.
Way to go Washington.
Oh, but there’s more.
We can’t forget the economic benefit of 240,000 new cars! Just think of the benefit to the dealers and their employees!
I did more research on this by contacting the National Auto Dealers Association (NADA). They say there were 20,000 new car dealers in the United states as of the beginning of this year, but now that number is expected to be about 18,000. They don’t represent used car dealers.
I called NIADA which represents used-car dealers and they estimate the number of used car dealers to be anywhere from 40,000 to 85,000 depending on the definition of a dealership. (The low figure would likely subtract motorcycle dealers, and individuals who refurbish and sell cars one at a time).
So, let’s do some more math. We’re spreading the “wealth” of these new car purchases among less than half of the auto dealers? Just doesn’t sound very American to me.
Finally—what about all those people who traded in their paid-off “clunker” in favor of a new car—and its associated loan? Did you know, that if you have an adjusted household income of up to 75,000 you can buy a car under the cash for clunkers program up to $45,000? Yes, that’s right 60% of your annual income.
{ 4 comments… read them below or add one }
Nice post Jessica. Thanks for the information.
This is precisely why we need to make sure the ill-conceived “health insurance reform” bill fails- unintended consequences once unleashed on the public.
Ok, I don’t love the program, but this is one of the worst posts I have ever read.
http://autos.yahoo.com/articles/autos_content_landing_pages/1036/top-cash-for-clunkers-trade-ins-and-new-cars/
Let’s just use some basic facts from here: What cars are being traded in? Late 90s Ford explorers. So, these people who are trading in their cars have *already* shown the tenacity of keeping a car greater than 10 years. Bzzt 1.
“Autoblog adds, “White House spokesman Robert Gibbs says the average fuel economy increase so far is 9.4 mpg; a 61% increase.” Based on the first 80,000 sales, “83% of the vehicles traded in have been trucks, while 60% of the vehicles purchased under the program have been cars.”"
Let’s pick some easy numbers – assume that average increase is from 15 –> 24.4 mpg ( a reasonable estimate), and using the random-but-common number of 12,000 miles driven annually, that gives you a savings of over 300 gallons a year, almost double what you’re talking about. Which of course then halves that nominal time to recoup.
Bzzt 2.
Not to mention that the newer cars uniformly are safer (again, old Ford Explorers) and have better emissions (thanks, California!).
“Used car dealers (who are just as hard hit as new car dealers, but now can’t compete for sales and can’t gain access to the used cars that are being traded in), charities who are missing out on the “donate your car” opportunities, and auto repair shops. There’s another argument against cash for clunkers—advocates for the poor who argue that they have no advantage from this package as they often don’t have a car that qualifies and are now seeing prices on used car lots go up as demand sinks and access is further limited by the “crunching” of the clunkers (all turned-in “clunkers” must be destroyed and cannot be reused as a vehicle)……We’re spreading the “wealth” of these new car purchases among less than half of the auto dealers? Just doesn’t sound very American to me.”
And, come on. Ok. The federal government, for better or for worse, is trying to stimulate the car companies. which they are doing…not to mention all the companies that make parts for them, and so on. Yes, there are fewer used vehicles around for the used car salesmen, and the charities – for probably double the duration of this program, but the whole point is that they are cars that we *don’t want on the road*. There are still plenty of used cars out there, and there will continue to be so after this program ends in another couple weeks or months.
And while I would *never* advocate getting a loan you can’t afford (and trying to avoid getting one at all!) unfreezing the credit markets right now is a *good thing*, if you’re looking at the larger economic picture. Banks loaning out money is good for *your* retirement savings.
Honestly, ragging on a singular program that is actually meeting its stated goals using such a tiny amount of money is an appalling waste of your time, and now, my time, for having been so annoyed by this post.
Looking at the congressional budget office release for the year so far (up to August 09)
http://www.cbo.gov/ftpdocs/104xx/doc10454/08-2009-MBR.pdf
and you’ll see that we’ve spent 169 *billion* dollars on TARP this year.
More than 50 times what this minor and arguably useful program does.
Take a moment to learn about numbers and orders of magnitude before you start getting all twisted up about a small program.
PS. It isn’t being “reinstituted”. The bill (HR 3435) is entitled : Making supplemental appropriations for fiscal year 2009 for the Consumer Assistance to Recycle and Save Program.
It’s a very short bill, you might take the time to read it.
http://thomas.loc.gov/cgi-bin/query/D?c111:3:./temp/~c111gDngLG::
Very nice article. One other consequence of cash for clunkers is its affect on charity car donation. Since the amount of the c4c voucher is much greater than the tax deduction a person receives when they donate a car, charities have gotten a lot less donations since the program started.