An estimated 125,000 new cars were purchased under the Cash for Clunkers program that would not have otherwise been purchased.
The average difference in gas mileage between the clunker that was traded in and the new car was 2 mpg.
The average driver drives 15,000 miles per year.
If the clunker was getting 15 mpg, it would have taken 1,000 gallons to drive those miles. If the new car gets 17 mpg, the car would require only 882 gallons for a savings of 118 gallons per year. In five years the savings would be 590 gallons per vehicle. For the net 125,000 new vehicles purchased, in five years 73,750,000 gallons of gas would be saved.
The cost of the program was $1 billion dollars. This equals $13.56 for each gallon of gas saved.
Does that sound like a bargain?
Obviously there is more than one way to calculate the savings in gas and I had to make some assumptions in the above calculation. One of the most obvious objections to my calculation is that the cars will be on the road longer than five years and will continue to save fuel. However, I am assuming that if customers had not purchased these cars that they would have delayed their purchase and the future cars they would have purchased instead would have gotten even better mileage than the cars they were enticed to purchase. If, for instance, hybrids gain popularity some people who would otherwise purchase a hybrid sooner will do so later because they will still be driving the car they purchased with the cash for clunkers enticement.
Another factor to consider is that if it cost less to drive a car people may simply drive more miles. This is a variable that is hard to calculate but is realistic. With cheaper gas or better gas mileage people will probably just drive more miles. Also, of course we do not know the future price of gasoline. Higher gas prices would decrease the miles driven thus making the cost per gallon saved even higher.
Another factor to consider is that in five years some of the cars will no longer be in service, others will be the "second" family car and will be driven less miles per year than when it was newer and was considered the first family car. Some of the cars will have been traded in and be driven by lower income people and be driven considerably fewer miles per year than the average of 15,000 miles a year. Some of the cars will simply no longer be in service. So, a five-year calculation seems reasonable, but admittedly this is arbitrary.
If you want to quibble with my figures, go ahead. In any event, whether the cost per gallon of gasoline saved is $9.00 or $13.56 or $21 it is still an expensive way to reduce gas consumption and curtail CO2 emissions. If there is some fatal flaw in my logic or my math, please point it out to me.
Obviously the purpose of the program was to stimulate the economy but it was also sold as a program to reduce gas consumption and help the environment. It was a very costly environmental program.
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I hope that the people that thought that this ponzi scheme was a great idea get a wake up call. It sure didn't help the national unemployment rate.
ReplyDeleteLet's look a little more closely at the numbers. If the only goal and only affect of the program were to reduce gas consumption, your logic might be valid, but I haven't checked the numbers to be sure.
ReplyDeleteSo, going with the Edmunds number in your previous blog post: The average new car goes for $28,400 according to the Federal Trade Commission. That means there were approximately $3.5 billion of car sales that would not have happened otherwise.
According the the State Tax Clearing House, the average state sales tax is 6%. This works out to be about $213 million in additional state sales tax revenues that the states would not have gotten otherwise.
Going with an average commission of $200 per car, car sales people would have earned an extra $25 million as a result of the program. That works out to be over $3 million in additional Federal Income tax revenues, and based on data from the Tax Foundation, another $1.3 million in additional State Income Tax Revenue.
Now, lets look at autoworkers. Based on current sales number I would estimate that about 84,000 of the cars were made in the United States. With an average Hours per vehicle, of 26 hours, that is about 2.2 million additional hours that workers in the United States spent building cars. At $28 per hour, that is about $61 million dollars of additional wages to car workers. This would result in another $7.7 million dollars in Federal Income Taxes and $3.2 million in State Income taxes.
None of this gets to indirect affects. How many additional auto workers would be collecting unemployment hours if those 2.2 million hours of additional work hadn't been required? How much did they spend in discretionary spending further boosting the economy, that they wouldn't have spent if they hadn't of been working those hours?
Well, let's see the clunkers program was a solution effort for the disaster caused by the - $978,000,000,000 the GOP paid for every "regime change" under Bush that bankrupted the country and dissolved confidence in our free market "leadership".
ReplyDeleteI'd pay 130.75 to get that tax money back.