Clunker bait - car dilemma?

[ERD50]

Quote:

Originally Posted by Martha So why do people think this car thing is such a bad idea?

I outlined my reasons.

1) It is too selective and rewards the people who purchased gas hogs over those who purchased more conservative vehicles (that's me!).

2) Why chose a single industry over another? (well, we know why, the govt is in the car business now, and the admin "owes" the UAW). See why some of us are not so keen on the govt getting too far into the health care business?

I won't accept that this is good for the environment until I see some analysis. Did Congress do any? I have not seen it.

I've seen some fuzzy math. The mph savings are *not* over the life of the new car, they are over the remaining life of the car being replaced. Then, you need to consider the energy required to make a new car, versus keeping an old car on the road for a few more years. Plus, the most likely people to jump on this are people who are trading in cars near death anyhow, they would have been replaced soon either way.

Whether you agree with the concept or not, it is still a boondoggle. Clearly, with so much demand, they could have offered less of the taxpayer's money, and still got that many old vehicles off the road. Why pay $3500 when maybe $1000 would have done the same thing?

Quote:

Originally Posted by Martha My thought is that it would have been a better idea if the mileage spread had to be greater and if people could buy a used car too

Well, I've said it many times - if we want to solve a "problem" the first step is define the problem. Is mpg the "problem"? Or is it total gas consumption? Or something else? We should be looking at *all* reasonable solutions and pick the one with the best likely outcome at the lowest cost. To just say, "well, some good will come of this" is not very responsible. This bill addresses everything in such roundabout ways. Here's an example:


A) Citizen owns a 15 mpg clunker they use for hauling stuff.

B) Same citizen owns a 28 mpg passenger car that they are thinking of replacing.

C) Citizen trades in the Clunker for a new 24 mpg passenger car (NOTE: WORSE mpg than what they owned) to get the rebate.

D) Citizen buys a used replacement clunker that gets 12 mpg (NOTE: WORSE mpg than what they owned).

Crazy. Worse all the way around, yet they got my money to do it. Double Crazy.


-ERD50

[Janet H]

Quote:

Originally Posted by Want2retire Sorry to hear that, but.... Does that mean that you are no longer interested in getting a new vehicle? It's hard to let go of an impulse like that once it has taken hold, even with the deal having been rescinded.

No impulse here. Interestingly, one of the comments from a sales weasel manager at the Subaru dealer was that they've seen a lot of folks with old guzzlers who actually use them for towing and other hauling trading them in on small daily drivers either for themselves or their kids and then still replacing the guzzler with a newer one. I can see how this is tempting. I could get the full 4500.00 in a trade on (for example) an Impreza. The 18 K drive would effectively cost 13.5K and they have 0% financing available - that looks like free money to me.

But I am still looking and undecided. I can't really find a qualifying vehicle that I actually want and most likely pass on the program for this reason. But it's clear this program is wildly popular. I saw hundreds of clunkers lined up like battalions of tin soldiers behind local dealers. The local Toyota dealer told me they had taken over 400 clunker trades in a short time and the car lots are stripped of qualifying cars;the Nissan dealer in my area had more empty asphalt than not.

[ERD50]

Well, I did my part I guess, I wrote my Congressmen (aka "tilted at windmills").

Asked them to *not* approve any more funds for this program. Like that's gonna help, they are both Dems. Oh well. In a few days, I'll get a response thanking me for my interest.

Why not just hand out $100 debit cards on the street corner? That would be a "successful" program also. Our govt defines "Success" as "being able to give away money". Heh-heh-heh, take that "business plan" and go around looking for investors

But even that gets bogged down in complicated rules, crashed web sites, and dissatisfied customers because the deal lasted 4 days instead of 90. Hey, they weren't *that* far off, only missed the target by 22x

-ERD50

[ERD50]

Quote:

Originally Posted by Martha So why do people think this car thing is such a bad idea? My thought is that it would have been a better idea if the mileage spread had to be greater and if people could buy a used car too.

I addition to my comments in post 81 of this thread...

Some of the rules are based on mpg spread, but the rules are, well the rules are just insane. Tell me where the sense is in this - what the heck is the "goal":

For passenger cars, rules say

1) New car must be 22mpg or better
2) Clunker must be 18mpg or less
3) $3500 for a 4mpg to 10 mpg spread
4) $4500 for 10mpg or greater spread.

As we have discussed before, mpg is just not a good ratio for easily comparing consumption. So I turned that into actual consumption based on 12,000 miles per year. That gives us:

A) Trade in an 18mpg for a 22mpg - DEAL $3,500. 121 gallons/year saved.

B) Trade in an 18mpg for a 28mpg - DEAL $4,500. 238 gallons/year saved.

C) Trade in an 20mpg for a 34mpg - *NO*DEAL $0. But... 247 gallons/year saved. More than A or B, but NO DEAL!

D) Trade in an 14mpg for a 21mpg - *NO*DEAL $0. But... 286 gallons/year saved. More than A or B or C, but NO DEAL!

So, this bill is about saving gas? Could'a fooled me (but they didn't). If they wanted to promote gas savings, they could have printed a table (like I did in two minutes in excel) and paid on a sliding scale - the bigger the consumption delta, the bigger the rebate. What's so hard about that?

I also did some very rough numbers on gas saved versus the environmental costs of trashing a vehicle that still runs. Just consider 121 gallons saved each year at $3/G that's ~ $363 saved in gas. So, how much energy thrown away for each year of the useful life of a vehicle that was lost? $363 x an assumed 15 year car life would be ~$5,400 total energy embedded in a car. Sounds like a low hurdle, but at any rate, that number offsets the gas savings and must bring it pretty close to zero energy savings.

It is so depressing to me that Congress "plays" with minutia details like this, gets it wrong, and there is so much that actually NEEDS their attention. We are doomed.

-ERD50

[Westernskies]

Quote:

Originally Posted by ERD50 We are doomed. -ERD50

ERD50, calm down. You are getting way too worked up over the numbers.

This has nothing to do with saving gas, the equation is really quite simple:

$4500=1 vote.

"Cash for Clunkers" refers to the buyers, not the cars...

[Rustic23]

Martha,
Why am I against Cash for Klunkers. We don't have the money.

Now I would most likely also be against it for some other reasons, i.e. it is a redistribution of wealth. But the fact that the Gov. is borrowing money to pay for this is enough. Yep, you guessed it, I am not real wild about credits to farmers, solar panels, Airlines, or any of the thousands of other things Congress spends money on 'too buy votes'.

[ERD50]

Quote:

Originally Posted by Westernskies ERD50, calm down. You are getting way too worked up over the numbers. This has nothing to do with saving gas, the equation is really quite simple: $4500=1 vote. "Cash for Clunkers" refers to the buyers, not the cars...

heh-heh - You are understating it - That's ONE vote for the UAW guy, ONE vote for the car dealer, ONE vote for the Clunker seller... Good deal for Congress (unless the rest of America wises up), buy votes with unborn people's money. Oooopps, I'm getting worked up again

Quote:

Originally Posted by Rustic23 Martha, Why am I against Cash for Klunkers. We don't have the money. Now I would most likely also be against it for some other reasons, i.e. it is a redistribution of wealth.

Rustic23, I doubt that is a good argument for Martha - she is in favor of redistribution of wealth. I get the impression that one reason she is in favor of so many of these things. Especially if we can't afford them. That will "force" the govt to tax the rich more.

I'm Ok with a progressive tax schedule. I'm not OK with " we will figure out how to pay for it later", and I do think we need to take the unintended consequences into consideration. I'm also not keen with the fact that ~ half of those filing Fed Income tax forms pay zero to very little income tax. I think more people need to have more "skin in the game" for this to be a democracy.

-ERD50

[TromboneAl]

If you believe that the recession is related to people not spending money, and that if they spend money then it will help end the recession, then the program is helpful.

First Point: The argument that "spending money is what got us into this mess in the first place," a talking point for the opposition, sounds reasonable, but is irrelevant. Around here controlled burns reduce the fuel load and prevent damaging forest fires. Is it a valid argument that fire should not be used to prevent fires? Sounds logical, but it is wrong.

If I almost drown, and when I recover in the hospital I ask for a glass of water, should the nurse say, "Whoa, buddy, water is what got you into this mess in the first place!"

So my first point is that even if the recession were caused by spending, it doesn't mean that spending can't be part of the solution.

Second Point: Reasonable spending did not get us into this mess. Wild overspending, borrowing, bad loans, complicated derivatives and the subprime mortgage crisis did. Currently some people are being almost as frugal as I am. Good for them, but bad for the economy. If they would start spending at a reasonable level, it would help the economy.

Third Point: "The program doesn't have much of a spread between old and new MPG." I agree with this. Several senators didn't want to approve more money unless the spread was increased. But they changed their mind. Why? Because it turns out that many of the participants are getting new cars with much better mileage than required by the program. That is, they're turning in big SUVs and getting small, fuel-efficient cars.

Fourth Point: "It's not fair, since it targets only one industry and select individuals." Who cares? If it helps end the recession, everyone benefits. If they had a program that only gave money to red-headed people, but it ended the recession, I wouldn't care. I stopped requiring fairness when I was six.

Fifth and Final Point: It's expensive -- where is this money going to come from? Answer: from the recovery. Tax revenues are way down:



If programs such as these end the recession sooner, then revenues will increase sooner. I don't know if it will work out that way, but to say "Where does the money come from?" is ignoring the entire point of the program.

SUMMARY: Saying "Spending got us into this mess, so it can't help us get out" like "If it doesn't fit, you must acquit," sounds logical, but many economists agree that increased spending will in fact help. But in any case, reasonable spending did not get us into this mess, other factors did.

Although the program is poorly designed in that the required increased MPG is small, it turns out that many buyers purchase cars with significantly better mileage anyway (22 percent better than that of all new cars sold last year).

Because it unfairly targets one industry is irrelevant to whether it can help, and although it costs money, ending the recession will improve tax revenues.

Frankly, I actually don't think the program is that great (gas tax would be better), but I decided to say something after seeing all the faulty arguments against it.

[Westernskies]

Quote:

Originally Posted by TromboneAl If they would start spending at a reasonable level, it would help the economy.

You go first...

[Rustic23]

TAl,
I am not an economist, but there seems to be some holes in your arguments.

I believe that consumer spending is one of the things that has to happen to get the economy moving. However, It has to be sustained spending. Several thousand people buying a new car and then nothing will not do it. I don't see the dealers hiring new folks based on their increased sales. Nor do I see other businesses expanding, as most are smart enough to know this is temporary. Now, if this program touches off increased consumer confidence, ie it is the match that starts the fire, then it would be worth it. Just like the previous 'Government give aways' over the past year have not lit that match, I don't think this will either. Nor do I think the replacement of 200,000 or so cars with slightly more fuel efficient cars is going to do anything.

My guess is the economy will recover. It always has. My guess is the politicians in power, which ever party will claim responsibility for it, Likewise, I believe auto sales and the industry in general will start to improve, and folks will point to 'cash for clunkers' as being responsible, and it will be 50 to a hundred years until it can be studied without politics. Let's face it, because of politics, IMHO, we still can't agree what actions ended the Great Depression and which ones hurt or were not effective.

[ERD50]

Quote:

Originally Posted by TromboneAl ... but I decided to say something after seeing all the faulty arguments against it

I'm a little confused about which/whose arguments you consider "faulty". But if your bullet points are meant to address them, I'll take 'em on, one at a time:

Quote:

Originally Posted by TromboneAl If you believe that the recession is related to people not spending money, and that if they spend money then it will help end the recession, then the program is helpful. First Point: So my first point is that even if the recession were caused by spending, it doesn't mean that spending can't be part of the solution.

Well, economists disagree on that (lump your point 2 in with this one). IIRC, One of the Euro summits that Obama was at, the Euro leaders were telling him that spending is not the way out.

So, if we can agree that this is maybe beyond our pay grade, let's evaluate the program from a "was this really a good way to get people to spend" perspective...

Quote:

Third Point: "The program doesn't have much of a spread between old and new MPG." I agree with this. .... Because it turns out that many of the participants are getting new cars with much better mileage than required by the program.[/URL] That is, they're turning in big SUVs and getting small, fuel-efficient cars.

I have several problems with this. First, everyone trading in a Clunker bought that car before gas hit $4.00 a gallon. I'd bet that if you looked into trade ins of those vehicles before the bill was announced, you would have seen a similar trend towards higher mpg. Sure, $3500 or $4500 may have encouraged some to go a bit further, but we can't credit everything to the bill. And, we don't know how many fit the example I gave earlier - trade in their clunker to get the $, but they are not really replacing the clunker, they were planning to buy a small passenger car anyhow - so they use the clunker because Uncle Sam offered more than anyone else would.

And I'll stick by my other mantra - it isn't a question of "did XYZ do *any* good", we should be asking, "was XYZ a reasonably effective, predictable and efficient way to achieve the goal". If there were better alternatives ( I think there were), we should have taken them.

Quote:

Fourth Point: "It's not fair, since it targets only one industry and select individuals." Who cares? If it helps end the recession, everyone benefits. If they had a program that only gave money to red-headed people, but it ended the recession, I wouldn't care. I stopped requiring fairness when I was six.

Wow. Yes, life is not fair. That seems like a poor rationalization for passing a bill that is not fair. Shouldn't Congress be held up to a reasonable standard of fairness? I guess that since there are still some racists in this country, it is OK for Congress to pass laws in support of racism? We should just "get over it", I guess?

And you are forgetting a group of people who are unfairly treated in this. The poor. Taking clunkers off the road has the effect of raising the price of old cars, and taking some repair parts off the market. These are the people hit the worst by this recession, and they not only don't get to take part in this offer (they can't afford a new car), they get DUMPED on. Ironic considering the political party that pushed this is supposedly all about helping the downtrodden.

Plus, in your red-headed example, you use a foregone conclusion to make your point. Weak. Even if we could somehow "know" that this bill would "end the recession", I can't see any reason to structure it so that only specific people get rewards, unless that was the *only* way to do it. I just don't see any reason for it.

Quote:

Fifth and Final Point: It's expensive -- where is this money going to come from? Answer: from the recovery. Tax revenues are way down:

Again, you use an assumed conclusion. We can't say we will pay the bill from the recovery, unless we can say that this bill can reasonably be expected to provide more than $3B in tax revenue. That's a stretch. These were clunkers. They would have been replaced anyhow, maybe just a bit farther out. This program did not sell a single car, it only pulled in the sale date. I have a hard time seeing how that could result in a 5x (assume 20% tax rates) multiplier in taxable income.

-ERD50

[ERD50]

Yet another "unintended (but not unforeseeable) consequence" of this stupid bill. Linked from the google news page:

‘Cash for Clunkers’ Puts the Brakes on Donations - Political News - FOXNews.com

yeah, yeah, yeah, I know, foxnews - you may not like the source, but I find it hard to question the content of this piece...

Quote:

Riteway Charity Services in Sun Valley, Calif. turns thousands of donated cars into money for local food banks, homeless shelters and Boys and Girls clubs. ... "It's pretty bleak, pretty bleak," said Teresa Deutsch, co-owner of the charity. "People are very leery to donate their vehicle. They are holding on to what they have, fixing the cars that they have and so the charities are really affected by that. It really hurts us." Now the car rebate program has really put the brakes on, leaving charities third in line. Charities can offer a tax write-off as little as $500 next spring. But that just can't compete with the program handing car buyers rebates of between $3,500 and $4,500 for trading in their gas-guzzlers for new, higher-mileage models. Car companies have credited the clunkers program with driving up sales in late July. ... But repair shops and parts stores are hurting as some customers trade in their clunkers instead of fixing them. The latest IRS figures show 300,000 cars were donated in 2005. And while the program may be a shot in the arm for dealers, charities that rely on donated cars say Uncle Sam has put them on life support. Some economists worry the program may be a drop in the bucket. "My only concern is what happens when the program expires, which is going to be soon," said Jack Kyser, an economist at the Los Angeles County Economic Development Corporation. "Do sales go back down, which they very well could. This is sort of an artificial stimulus."

Again, hurting the little guy. This stinks.

If anyone is not ANGRY about this bill, I have to question whether they have a heart or not. Shouldn't we ALL be angry?

And let's not forget that the jump in sales for July is somewhat artificial in itself. How long have they been talking about C4C? A lot of people held off on purchases until the start - how many waited a couple months for the chance to get $3,500 or $4,500 instead of a near zero trade-in value? So the "jump" is partially just delayed sales from May, June or whenever. This was getting talked about back in January...

Congress Proposes 'Cash For Clunkers' Program : NPR

-ERD50

[FUEGO]

Here's a little more food for thought:

'Cash for Clunkers' Barely Makes a Dent : Discovery News

To summarize: this does very little to save the environment, but may have limited stimulative effects on the economy. In the words of a recent book on smart energy policy: "Every little bit helps. A little bit."

Quote:

"As a carbon dioxide policy, this is a terribly wasteful thing to do," said Henry Jacoby, a professor of management and co-director of the Joint Program on the Science and Policy of Global Change at MIT. ---- The total savings per year from cash for clunkers translates to about 57 minutes of America's output of the chief greenhouse gas. ---- "There's 260 million vehicles on the road and you're talking a quarter-million vehicles. It's not even close. It's just a drop in the bucket," said Bruce Belzowski, a scientist at the University of Michigan's Transportation Research Institute. ------ Paying up to $4,500 per clunker means the government is spending more than $160 for every ton of carbon dioxide removed over 10 years, said MIT's Jacoby, co-author of the book "Transportation in a Climate-Constrained World." That's five to 10 times more than the estimated per-ton cost of carbon dioxide for power plants in the cap-and-trade system passed earlier this year by the House. Michael Gerrard, director of the Center for Climate Change Law at Columbia University, who examined the clunkers program in an academic journal, said there are far better ways to cut energy use and greenhouse gases. "It's not that it's a bad idea; just don't sell it as a cost-effective energy savings method," he said. "From an economic standpoint it seems to be a roaring success. From an environment and energy perspective, it's not where you would put your first dollar."

[ERD50]

Quote:

Originally Posted by FUEGO Here's a little more food for thought: 'Cash for Clunkers' Barely Makes a Dent : Discovery News To summarize: this does very little to save the environment, but may have limited stimulative effects on the economy. In the words of a recent book on smart energy policy: "Every little bit helps. A little bit."

Thanks FUEGO, here's the standout from that list for me:

Quote:

...the government is spending more than $160 for every ton of carbon dioxide removed over 10 years, .... That's five to 10 times more than the estimated per-ton cost of carbon dioxide for power plants in the cap-and-trade system passed earlier this year by the House.

This goes along with my mantra that you can't just claim that you did "some good", it needs to be reasonably efficient/effective and at least in the ballpark of alternatives (I'm not asking for perfection). But 5 to 10x the cost of some other plan? Why do it?

T-Al - any comments? You claimed the arguments against C4C were "faulty". Do you think our responses are off-base also? In what way?

One more analysis.... coming up.

-ERD50

[ERD50]

I did a little more poking around for analysis, and found this, straight from the Congressional Budget Office (NOTE: this seems to be based on the original proposal of $4B - ratios remain the same, I'll adjust to the current $3B where needed):


http://www.cbo.gov/ftpdocs/103xx/doc10323/hr2751.pdf

Quote:

"This increase in fuel efficiency would result in a slight decline in gasoline consumption that would reduce federal revenues generated by the federal tax on motor fuels. As a result, CBO estimates that the program would reduce federal tax receipts by $26 million over the 2010-2014 period and $44 million over the 2010-2019 period.

And I used this data:

EIA - Petroleum Basic Data

Quote:

U.S. Motor Gasoline Consumption 8,989,000 barrels/day (378 million gallons/day) Federal Motor Gasoline Tax 18.4 cents/gallon

to calculate that $44M decreased revenue from gasoline consumption at 18.4 cents/Gallon equates to 239,130,435 gallons saved over 10 years. Big number, but let's put it in perspective:

That is 23,913,043 gallons/year, and we use 137,970,000,000 gallons/year. That is a 0.017% savings. A drop in the bucket? Actually it's a little better than that, it's like taking ~ 1/2 a teaspoon out of a Five Gallon bucket. Impressive, huh? Or, divide by the 1 million vehicles ($4B/average $4K rebate), that is 24 gallons of gas saved in a year for each rebate, on average.

Economically, that amounts to a $17 outlay of our tax money for each gallon saved - right in the range of the scenarios that FEUGO gave earlier. Would anyone here spend $17 to save a gallon of gas? Well, your Congressperson made that decision for you.

The CBO does not show their methodology for calculating the gas savings, but...

Quote:

"New vehicles purchased as a result of the program would generally be more fuel efficient than ones that would otherwise be purchased as replacements."

The "otherwise be purchased as replacements" makes me think they figured that people ARE buying more eff vehicles already, as I indicated earlier. 24 gallons/year is not a large enough mpg delta to qualify for the rebate. So I think they are considering that people are buying more efficient cars after the $4/gallon "scare". So this must represent the incremental mpg boost from the rebate offer.


So what if we wanted to expand the program to a meaningful number? Can we call 1% the threshold of "meaningful"?

Well, that is over 50x the gas savings we get with $4B, so we would need to spend $200B. It would also represent 50x the 1 million cars used in their numbers, so 50M clunkers. Whoops:

Quote:

"CBO expects that fewer than 25 million are both currently registered and are worth less than the voucher amounts. .... We project that new vehicle sales in the United States will total about .... 16 million in 2007."

There are not enough clunkers to do it. And, it would represent about 3x the sales of new cars in 2007. I don't think enough people can afford new cars to make that feasible. So there is no way this program can even come close to making a 1% dent, and $17/gallon is ludicrous.


T-Al mentioned that these extra sales would result in increased revenue for the Feds. CBO does not agree:

Quote:

"CBO estimates that net revenues would increase by $33 million in 2010 and by $18 million over the 2010-2014 period. Over the 2010-2019 period, we estimate that there would be no significant net effect on revenues."

So $4B outlay to increase revenue by 51M? Spend $78 to gain $1? No thanks.

I think T-Al was figuring that this would have some sort of multiplier effect, and the 750,000 pulled in car sales (based on $3B) will jump start and "fix" the economy, and then we tax the next bull market. Well, I ain't buying that, and as was mentioned, we will never sort it out even in hindsight. We will have to agree to disagree on that one. But the other figures are mathematical. If I made a 'rithmetic error, please correct me.

-ERD50

[ERD50]

Now I'm even more confused:

Plan for new jets for Congress sparks bipartisan resistance - On Deadline - USATODAY.com

Quote:

Opposition is growing on both sides of the aisle to plans by Congress to spend $550 million for eight new Gulfstream and Boeing planes for senior government officials, The Wall Street Journal reports. The newspaper quotes Sen. Claire McCaskill, D-Mo., as saying the planned purchase "is evidence that some of the cynicism about Washington is well placed -- that people get out of touch and they spend money like it's Monopoly money."

If Congress is congratulating themselves on the "success" of throwing $1B (then $3B) at the auto industry because it was supposed to be good for them and good for the economy, then why isn't $.55B also good for the airline construction industry and good for the economy? These are domestic companies, right?

There aren't enough clunkers, so spread the wealth debt.

It appears that McCaskill voted for C4C but not the extension.

-ERD50

[Rustic23]

Look I think we are being too tough on Congress. The cash for clunkers is a huge success by their standards. They gave away 1 billion dollars in four days, after taking two or three months to figure out how, and it only cost them 50 million dollars to do so. How much more of a success can we afford?