Saturday, March 13, 2010

The Costly "Cash for Clunkers" Program

A 15 mpg clunker that travels 12,000 miles a year uses 800 gallons of gas a year.

A 25 mpg vehicle that travels 12,000 miles a year uses 480 gallons a year.

So, the average Cash for Clunkers transaction will reduce US gasoline consumption by 320 gallons per year.

They claim 700,000 clunkers were turned-in, so that’s 224 million gallons saved per year.

That equates to a bit over 5 million barrels of oil.

5 million barrels is about 5 hours worth of US consumption.

More importantly, 5 million barrels of oil at $70 per barrel costs about $350 million dollars

So, the government paid $3 billion of our tax dollars to save $350 million.

We spent $8.57 for every dollar we saved


Hollowpoint1938 said...

But, Alan, you know that the US Carbon Footprint will be reduced, so it was well worth it! (Snark)

Ron H. said...

Darn it, Alan, I thought I was over being upset about this stupidest of all government programs, (well, I could be wrong about that, I suppose) and then you had to bring it up again. Now I'm mad once again. :-)

I'm sure you have heard all of the following already, but now that I'm riled up, I feel the need to vent - again.

Besides the obvious waste of taxpayer money you pointed out, I found the following to be wrong with the C4C program.

1. The auto companies didn't create any new jobs or gear up manufacturing, as they knew, as we all did, that the increased sales were a tiny bubble that would not outlive the C4C program.

2. Dealers knew the same thing, and enjoyed some increased sales while it lasted, but then suffered in later months.

3. Buyers who took advantage of the program lost out in several ways. They gave up the ordinary trade-in value of their car, so if their trade-in was worth $2500 and the C4C rebate was $4500, they only gained $2000 because of this program. They paid sales tax on the full price of the car, including the amount of the clunker rebate ($4500). They then paid income tax on the amount of the clunker rebate. They also may not have bargained as hard as they otherwise might have for a lower price on the new car, so their actual gain might be quite small, or even negative!

4. I suppose most people borrow money to buy a car, so if part of the financial problems we suffer now are due to too much credit, then the C4C program was in effect throwing gasoline on a fire by encouraging more borrowing.

5. I laugh out loud when people talk of reduced CO2 as being one of the supposed positive effects of this program. The C4C program required a new car to get as little as 2mpg more than the clunker, and I believe studies show that people tend to drive their new cars more miles than they drove their old ones, so any reduction in CO2 emissions could not likely even be measured, and Alan's estimated savings of $350 million may be too generous.

6. As with most government programs, those hurt the worst are people with low incomes. Those in no position to buy a new car rely on the availability of good used cars. With 700,000 of these now off the market, their choices are fewer, and prices are bound to be higher.

Was there anything good about the C4C program? Maybe, but I sure don't know what it was.

Alan, thanks for allowing me to vent. I feel much better now.

Alan Caruba said...

I may have to change the name of the blog to "Vent R Us" if this keeps up.

Hope you're feeling better. ;-)

ytba said...

Wow! You know, when you put it like that, it sounds pretty efficient, government standards.