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Friday, August 7, 2009
Cash for Clunkers wildly successful, sort of

I WAS SO GLAD TO HEAR that Cash for Clunkers, the Congressional program where ordinary citizens are given thousands of dollars to trade in their old wasteful, noxious-gas-spewing clunkers for new thriftier, cleaner replacements, was working so well that they are thinking about expanding it.  I was very disappointed, however, when I found out it wasn't a program for buying new congresspersons to replace our old ones.

Of course the actual Cash for Clunkers program is wildly successful.  Loose cash blowing down the street has always attracted an eager crowd.

Government at its best is a blunt instrument.  At its worst its power appears to be an instrument wielded by those who have suffered from blunt force trauma to the head.  Let us think for a moment about this program -- something few of our congresspersons did before they voted for this junker.

Here is how it works.  Officially known as the Car Allowance Rebate System, the CARS program allows individuals to trade in a vehicle which must be less than 25 years old and get 18 or fewer miles per gallon in exchange for $3,500 to be used to purchase or lease a new vehicle which gets at least 22 miles per gallon, or $4,500 if the new car gets five or more miles per gallon more than the trade-in.

Of course, the actual program is more complicated than this.  (I did say it was a government program, didn't I?)  Trucks, for example, have smaller mileage improvement targets.

According to the government, CARS is designed to help consumers buy or lease more environmentally-friendly vehicles which will "energize the economy; boost auto sales and put safer, cleaner and more fuel-efficient vehicles on the nation's roadways."

It will do these things, but at what cost?  One billion dollars -- to start with.  (More billions if it is extended and expanded.)

Showing that economic ignorance knows no party line when the proper state lines are involved, one Michigan Republican, Congresswoman Candice Miller, says, "There can be no doubt that the Cash for Clunkers program is a complete success given the fact that the entire $1 billion allocated to the program was expended in less than a week."

True, but one thousand Brinks trucks with their backdoors left open each with one million dollars in loose 20s driving our highways and byways would stimulate better -- and faster.

Consider that the real value of the discounts to consumers is $3,500 to $4,500 minus the value of the trade-ins, which must be destroyed.  This means only relatively low-value vehicles will be traded, otherwise it makes more sense to keep them.  That is, cars with little useful life left in them, thus big costs for small returns.

If the trade-ins are not of low value, vehicles with useful lives will be destroyed.  In both cases these discounts will assist wealthier buyers, people who had a car and could afford or almost afford a new one.  Meanwhile, the vehicles destroyed represent an implicit tax on poor people as a result of decreasing the supply of low value cars and trucks -- unless, of course, Congress repealed the law of supply and demand at the same time they passed this one.

What about energy savings?  Until the trade-ins and replacements are tallied we can't know precisely, but I estimate that it is likely to be only a little more than five or six miles per gallon per vehicle improvement.  Let’s assume that over each trade-in vehicle's remaining life when it would have been junked anyway, it would hang on, optimistically, 25,000 more miles. With a government-estimated 25.4 mpg for the new vehicles versus 15.8 mpg for the old clunkers, each trade-in will save about 600 gallons of fuel.  This equals, at an average $4,000 discount, a cost in the neighborhood of $6.67 per gallon saved.  Make sense to you?  Not for my money.


Gary D. Gaddy owns a used first-generation Prius that he bought with his own money -- sadly.

A version of this column was published in the Chapel Hill Herald Thursday August 7, 2009.

Copyright   2009  Gary D. Gaddy

Authored by Gary G. Gaddy at 8:07 AM EDT
Updated: Wednesday, August 12, 2009 4:25 PM EDT
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