Speedzzter

Was Cash for Clunkers Worth It?

On Sep 03 09:04 AM Ben B. wrote:

> Here's another way of looking at it: CfC sold 690k cars with an average
> fuel economy improvement of 9.1mpg. Using an average annual vehicle
> mileage of 12k miles/year and $70/barrel oil*, these vehicle trade-ins
> will keep roughly $2.0B annually onshore**. Obviously, some of this
> is just pull through from sales that would have occurred without
> CfC, but it's hard to make a set of assumptions starting with that
> $2.0B figure that result in this not being a cashflow positive for
> the US economy. I very seldom defend government programs, but this
> one could have gone a whole lot worse.
>
>
> *1 barrel oil ~= 19.5 gallons gasoline (depending on heaviness of
> oil)
> ** The US imports 62% of its oil

This analysis is speculative and probably flawed:

1. The average fuel economy improvement assumed seems too high (given that less than 10% of the C4C welfare "deals" have been funded, it's premature to project the fuel economy effects. Some $3,500 "clunker" deals could have yielded minimal real fuel economy improvements).
2. Ignores that higher M.P.G. cars tend to be driven more, which reduces their net decrease in fuel consumption (Makes sense because the "opportunity cost" of driving goes down and consumers already have a "budget line" for fuel).
3. Ignores the effects on the used car market -- some of the "clunkers" would have undoubtedly went in the used car market to replace less fuel efficient older vehicles or as donors to improve the efficiency of older vehicles (i.e. "hot rods"). Now these replacements will not necessarily occur.
4. Assumption on the "clunker" miles driven may be too high. A number of the "clunkers" traded were undoubtedly seldom-driven second and third cars, while their replacements will likely become primary cars -- often for the children of the welfare voucher recipients (at least until some of the drivers tire of motoring in tiny, imported FWD deathtraps or die in crashes that would have been surviable in a larger vehicle)
5. Ignores the offshoring of perhaps as much as 50 percent of the profits, 60-70% of the fixed production and development costs, and a huge percentage of the interest on the 50% of C4C funds that were borrowed.
6. Ignores the percentage of diesel powered vehicles traded and purchased. There are only approximately 9 gallons of diesel per barrel of imported oil, so any reduction effects should be adjusted accordingly.

Clearly, there would have been more efficient ways to reduce oil imports. There is no way this program allocates resources more efficiently than the not-so-free market otherwise would have.

Was Cash for Clunkers Worth It?

Of course it was not worth it.

What the cost-per-sale analyses usually fail to factor in is the debt cost. Half of the welfare money wasted buying up good used cars and destroying them was BORROWED. (Who knows if it will EVER be paid back)

When you calculate the interest cost on $1.5 Billion and spread it across the mostly foreign FWD wimpmobiles sold under the CARS program, the true cost is going to be a lot more than ~ $7,800 per unit.

Cash for clunkers was more wasteful than the infamous "$800 toilet seat"