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Cash for Clunkers riddled with fuzzy math
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There's this scene in the brilliant-but-cancelled Arrested Development where GOB stands in front of a room full of his company's board members and performs one of his "illusions" —turning a $100 bill into 100 pennies.
Well, the Obama administration has similarly found a way to turn $24,000 into $4,500.
The numbers are finally in from this summer's epic "Cash for Clunkers" promotion and it turns out that the program — touted as one of the more successful aspects of Obama's stimulus package, mind you — wasn't altogether as successful as we've been led to believe.
Cash for Clunkers gave new car buyers up to $4,500 to replace their old vehicles with ones with better mileage. 700,000 vehicles were sold under the program, at a cost to the government of just under $3 billion. I was actually impressed that many cars were sold. Frankly, I didn't see much difference between Cash for Clunkers and those car commercials you see on TV shouting at you to "drive it in, drag it in, pull it in" for your used car. But this program just shows that people actually do trust their government more than they trust car dealers. And you wonder why the auto industry is in trouble?
Anyway, a new study from the auto analysts at Edmunds.com reveals that of the 700,000 cars sold, only 125,000 of the sales were incremental, meaning that the rest of the sales would have happened anyway, regardless of the existence of the program. So a cost of $3 billion divided by 125,000 new cars gets you $24,000 per car.
Factor in the fact that the majority of the cars sold were foreign models like Hyundai and Toyota, and you've got the definition of government waste.
Now, some of the proponents of Cash for Clunkers will argue that it was primarily created for its environmental benefits — taking low-mileage cars off the road and replacing them with more fuel efficient, cleaner burning engines.
That's great, if you overlook the bare minimum requirement for a trade-in was an increase of just 4 mpg for a $3,500 credit, or 10 mpg for the full $4,500 credit. Plus there's the fact that many dealers skirted the rules, and even a handful of Hummers were sold under the program.
Americans for Tax Reform actually worked out the math on the gas savings from Clunkers:
• A “clunker” that gets 15 mpg and travels 12,000 miles per year, consumes 800 gallons of gasoline per year.
• A new “fuel-efficient” vehicle that gets 25 mpg and travels 12,000 miles per year, consumes 480 gallons of gasoline per year.
• The average clunker transaction reduces US gasoline consumption by 320 gallons/year.
• With 700,000 vehicles participating in this program, that’s 224 million gallons/year saved because of this program – roughly 5 million barrels of oil/year.
• 5 million barrels costs about $375 million at $75/barrel.
• The “Cash for Clunkers” costs $3 billion.
So there we go again, turning $3 billion into $375 million in oil savings. Clunker apologists will tell you that this math ignores that cumulative effect of the gas savings over a period of years. But still, many of the cars traded in weren't being driven anyway (that's why they were called clunkers) or most likely would have been replaced sooner, rather than later.
Hopefully Americans who participated in the program will appreciate the $24,000 gift they were given. After all, years from now when that car itself is a clunker, their kids will still be paying it off.
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