Separating Myth from Fact on “Cash for Clunkers”

As
debate rages on in the capital over whether to keep assisting the auto
industry by giving out more "cash for clunkers" rebates, two assertions
are becoming commonplace: the program is helping diminish U.S. oil
consumption, and the program is not paid for with new money.

ap_gma_cash_clunkers_090731_mn.jpg(Photo: AP)

The first argument was reiterated on Friday by President Obama, who said of the "clunkers" auto trade-in discounts: "This gives consumers a break, reduces dangerous
carbon pollution and our dependence on foreign oil, and strengthens the
American auto industry."

That same day, however, energy analysts were crunching the numbers for Reuters.
Even if $2 billion in new "clunker" rebates were offered, they found,
the total resulting decline in America’s daily oil consumption would be 0.05 percent:

"It has proved to be a highly successful vehicle marketing tool," said
Tim Evans, energy analyst for Citi Futures Perspective in New York.
"But you would need a microscope to see the demand impact for gasoline
from this program because it involves a relatively small number of
vehicles."

The
Reuters estimate assumes an average upgrade in fuel efficiency of 10
miles per gallon, which is in line with initial auto industry statistics on new trade-ins.

The
analysis also assumes 250,000 trade-ins, which the government estimates
is roughly the number that took place during the first $1 billion week
of the taxpayer-subsidized "clunkers" program. Given the likelihood of
new funding for the rebates, however, that 0.05 percent number could
double or triple — for a total daily oil-consumption reduction of 0.15
percent.

The second argument, that offering $2 billion in
extra "clunkers" cash would not amount to deficit spending, stems from
Democratic leaders’ decision to shift the funds over from a Department
of Energy (DoE) loan guarantee program.

That strategy was designed to appeal to fiscal hawks who would have a difficult time voting to add to the already trillion-dollar federal deficit. Indeed. Sen. Claire McCaskill (D-MO) already put her leaders on notice (via Twitter) that she could only vote yes on "clunkers" if no new money was spent.

But
the DoE loans in question were approved to encourage the development of
alternative energy and biofuels, two "green job" creators that have
influential allies on Capitol Hill. Senate Energy Committee Chairman
Jeff Bingaman (D-NM) is already
criticizing the shift as a raid on the clean-energy pot, and Renewable
Fuels Association chief Bob Dineen said he wants Congress to promptly
put the $2 billion back home at the DoE:

The
ethanol industry understands the trying economic times this country
finds itself in and thus supports ideas like the "cash for clunkers”
program, but is concerned to see the program paid for by depleting the
renewable energy loan guarantee program. We hope Congress will move
quickly to replenish the fund. One of the advantages of the “cash for
clunkers” program is putting more fuel efficient cars on the road,
however those new cars should also be running on renewable fuels like
ethanol in order to benefit both the changing climate and the domestic
economy. For the U.S. long term auto and fuel needs, it seems
counterproductive to limit the renewable fuels industry.

Given the political pressure already being exerted, it’s difficult to
see how congressional leaders can avoid spending a new $2 billion to
keep the auto rebates alive. Replenishing the DoE fund would take place
in a separate vote later this year, however, making it easier for
lawmakers to claim they’re not adding to the deficit with this week’s
"clunkers" vote.

  • David Galvan

    “But you would need a microscope to see the demand impact for gasoline from this program because it involves a relatively small number of vehicles.

    Well duh. There are a lot of cars in this country. That’s like saying that individuals shouldn’t bother making the decision to give up their cars and take public transit, since only a small percentage of the U.S. population would make that change, and hence it wouldn’t have a significant impact on the oil consumption of the entire country. Funny, I don’t normally see posts on this blog that frame pro-transit news items in that way. It’s just the car fuel efficiency stories that get that treatment.

    Look, there are something on the order of 247 million registered motor vehicles in the U.S. (including cars, trucks, buses, privately, commercially, and publicly owned). From :
    http://www.fhwa.dot.gov/policyinformation/statistics/2007/mv1.cfm

    The clunkers program replaced 250,000 low mpg cars last week with 250,000 higher mpg cars. 250,000 / 247,000,000 = 0.001 = 0.1%

    So the program upgraded about 0.1% (one one thousandth) of the nation’s registered motor vehicles last week. Since we only improved the gas mileage of those cars (instead of eliminating the cars altogether), it should be no surprise that the impact on our NATIONAL gasoline consumption is about half that, or 0.05%.

    What were people expecting, here? To reduce our total NATIONAL gasoline consumption by half in one week? Give me a break.

    But it sure as hell is better than doing nothing, and by all acounts most of these upgrades were made by buyers who would not be buying new cars if not for this program. And I would bet good money that the reduction in gas/oil consumption resulting from this program is far larger than the reduction in gas/oil consumption resulting from all the other public transit / bicycle initiative programs that have been / will be carried out this year nationwide. So everyone should feel free to poo-poo this program, as long as they are willing to minimize the contribution of individuals deciding to bike or take the bus instead of drive as well.

  • angle

    Thanks to “Cash For Clunkers”, we got four grand for that ’95 Pontiac that we barely drive anymore. The mechanic says it only has about three or four months left on the transmission – I think we got rid of it just in time! Our new car actually has a GPS and a built-in dock for my iPod! OK, so how long am I going to have to wait for a government subsidy to replace my crappy old 19″ TV with a new, efficient flatscreen? My computer is a few years old now, too, and I bet a new one would save some energy – come on, Uncle Sam, fork over some seed money so I can get new stuff, already!

    Hey, it’s all good – stimulate the economy, save some jobs, save a little energy – pretty soon, America’s back to a healthy, growing economy!

    Wait, what’s that… there’s no more money for additional stimulus programs? Now I have to take a pay cut or lose my job? And my credit is maxed out?

    Man, why is food so expensive?

  • David Galvan

    So, if I can read through your sarcasm, you’re saying that it is ridiculous and irresponsible to spend $3 Billion to help americans nationwide get more fuel efficient cars. It is, however, completely reasonable to expect the federal government to give $5-10 Billion to the city of Los Angeles to accelerate the purple line extension, right?

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