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"

Foreign Carmakers More Domestic than Detroit's Big Three

I agree that this article is very misleading. The Detroit 3 clearly provide more American value-added content (i.e. design, engineering, testing, management, marketing, manufacturing, parts and components) than any of the "invaders." Unfortunately, the "domestic content" labels are too narrow to reflect this.

But with respect to the narrow measure of assembly, Ford is poised to assume the honor of building more vehicles in America than anyone else (and but for the arcane and obsolete "two fleets" CAFE rule, undoubtedly even more vehicles would have been built here).

"Ford . . . will rank first in 2009 with 1.9 million units, according to data from forecasting group IHS Global Insight, which released its North American light-vehicle production forecast this month."

"GM . . . is idling most of its plants over the next couple of months and will produce an estimated 1.7 million vehicles this year" which is good enough for second place.

What about predatory foreign invaders like Honda and Toyota? PLEASE! They'll still be behind Chrysler (which is in the midst of a total production shut-down during its bankruptcy) when the 2009 counting is done. And the domestic content of Honda and Toyota still lags far behind the Detroit 3.

"[A]mong the most popular U.S.-built cars and trucks, the models with the highest domestic content ratings come from Detroit automakers. Of the 35 most popular U.S.-built 2008 and 2009 models — based on sales through May 31, 2008 — 43 percent of GM, Ford and Chrysler contenders had domestic content ratings of 75 percent or higher. In comparison, just 25 percent of the Nissan, Honda, Hyundai and Toyota models on the list achieved that."

Ford is quietly emerging out of the Obamanomics chaos as the only true AMERICAN CHOICE.

Obama's Sweeping Changes for America's Cars

Dreamkilling Barack Obama may have conducted his propaganda photo op announcing the death of automotive liberty in America in the White House Rose Garden, but it's a different kind of flower that will proliferate under the 42 M.P.G. automobile Corporate Average Fuel Economy standard: FUNERAL FLOWERS.

* * * *
Of course, it doesn't take a Harvard-trained physicist to figure out that: (a) weight and fuel economy are inextricably linked; and (b) smaller and lighter loses out every time to bigger and heavier. The pre-Obama CAFE was a proven killer. Now the Obamanator and the "Governator" have just made it even worse.

However, the mere mention of hiked fuel economy standards and more "hamburger on the highway" was enough to cause the granola-eating, all-natural-fiber high priests of the environmental left to kowtow Obama into sacking his initial nominee to lead the National Highway Traffic Safety Administration,Charles "Chuck" Hurley.

(However, sporting motorists were hardly sorry to see "MADD Chuck" go, given that he was poised to be the Obama Administration's stalking horse for a return of the 55 m.p.h. national speed limit)

FoMoCo's face of appliance motoring (other than William Clay Ford, Jr.), Vice President for Environment and Safety, Sue Cischke weighed in with the obvious:

When regulations establish requirements on what people buy, not what we make, if people aren't buying those, we have to offer incentives . . .We can't force people to buy what they don't want to buy.

We already know FoMoCo's favorite incentive is a draconian federal fuel tax . . .

Cischke also gave a clue about the butchering up of the next generation Mustang:

"Though it'll be expensive, Ford's Cischke says, a lighter car can be made as safe as a heavier car."

Even before the new regulation, Ford Motor was planning on 'taking between 250 and 750 pounds from (each of) our vehicles. That's a huge challenge,' she says."

"'It's all about managing the energy, protecting the crash cage,' she says. 'There are ways you can design a vehicle to be very strong, to provide the same crash safety as a heavier one.'"

Although anyone familiar with NASCAR racing knows that a "cage" can provide remarkable strength-to-weight and protection, the cost and the inconvenience is enormous. Thus, "taking between 250 and 750 pounds" out of the Mustang without using cost prohibitive methods, such as aluminum unibodies and carbon fiber, while at the same time beefing up the "cage" MEANS DOWNSIZING, CANNING THE V8s, AND FRONT WHEEL DRIVE.

If that happens, most Mustangers probably won't care if the ObamaMobile FWD "Mustang IIs" aren't as safe, because they'll be so depressed at the death of the "real" Mustang (V8 & RWD) that they'll WISH THEY WERE ALREADY DEAD!

Across-the-board downsizing is virtually a certainty in the lower-priced ranks because it does no good to build rolling high-tech fortresses of carbon fiber, magnesium, aluminum and dozens of airbags if regular wage earners cannot afford to buy them.

The $1,300.00-per-vehicle average price "tax" that will be extracted from new vehicle buyers to cover the fuel economy technology doesn't take into account the hidden costs of the Obamanator CAFE hike, such as higher insurance premiums that will be required to cover increased personal injury payouts, lost productivity, and manifold pain and suffering that will occur when the ObamaMobile hybrid minicars collide with working trucks or vintage vehicles that survive the Billy Ford and the Democrats' war on historic vehicles (a/k/a "Cash for Clunkers").

But as the highway carnage inevitably rises with the downsizing of the fleet, the radical Obamamaniacs and the freedom-hating EnviroNazis will certainly be waiting in the wings with the final piece of 1970s greeniac nostalgia: The federal 55 m.p.h. speed limit.

Washington Giving Detroit a Second Chance

"Washington could offer incentives to car buyers to trade in gas guzzlers for more fuel-efficient vehicles — the newer and the bigger the clunker and the more fuel-efficient the replacement, the more dollars the car buyer would receive if the guzzler is destroyed. This would raise the price carmakers receive from selling more fuel-efficient vehicles and boost car sales."

This is a horrible idea that will amount to nothing more than another wasteful welfare plan. It will lead to the loss of historically significant vehicles and will drive up used car prices. It will adversely impact the supply of used and replacement auto parts which are necessary to low income families as well as to millions of automotive enthusiasts, :"tuners," :"hot rodders" and grassroots racers. The Specialty Equipment Market Association (SEMA), car collectors, and motoring enthusast groups will fight such a misguided strategy.

Should We Really Bail Out the Big Three Automakers with $73.20 Per Hour Labor?

Federal labor policy in the 1930s infected the Detroit 3 with expensive union labor.

The Big 3 have been stuck with uncompetitive, non-market-based labor costs ever since. Moreover Japanese protectionism and government subsidies shielded Japanese car makers and bankrolled much of their advanced technology. State right-to-work laws created a safe haven for the "Japanese invasion" that was unavailable to the Detroit 3. Meanwhile Detroit paid the lion's share of the unfunded mandates on emissions and safety compliance.


The fix should level the playing field by shifting most of the legacy costs across the entire auto industry and tying UAW labor rates to market rates for labor. And the $100 Billion costs of increased Corporate Average Fuel Economy compliance should also be spread to those who supposedly will benefit.

New Fuel Rules Favor Detroit Automakers

Not surprising. One-size-fits-all bureaucratic tampering with the free market often adversely affects fringe and niche segments more adversely.

Don't be surprised if we see "footprint" circumvention through larger "Bonneville" streamliner-styled sports cars (i.e. a larger, "lower-density" aerodynamic vehicle designed to artificially increase the "footprint" through wider tracks, tapered and extended tail sections and larger front "splitters"). Also don't be surprised if we see more "trucklets" (Utes, "Rancheros," "El Caminos") and CUV-based "sports cars," with just enough "truck" features to qualify under the more generous truck CAFE standards.

One thing is sure, the new rules will bloat the price of high performance models and will tend to reduce nimbleness.