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.

cash_for_clunkers_paper.jpgPhoto: 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.

  • travis

    What about the embodied energy it takes to manufacture 250,000+ new cars? I find it hard to believe that, all told, this program reduces our carbon footprint whatsoever.

    And if we’re going to steal from one government program to fund another, let’s make sure the dollars are spent to fundamentally restructure what got us into this mess in the first place. These billions could have bought light rail for ten transit-deprived American cities, which would provide a bigger long-term boost to the economy, taking thousands of gas-guzzling cars off the road in the process. But as always, the quick fix band-aid for the auto industry rules the day.

  • “‘Change you can believe in’ has morphed into ‘a status quo you will bend heaven and earth to hold onto’.” — today’s column by James Howard Kunstler

  • I think the critics are missing the point here – this isn’t about how much less oil will be imported because of this program, rather it’s about an individual household trading in their guzzler for a modern, efficient vehicle, resulting in less criteria pollutants as well as less carbon emissions. Consider that to get the full $4500 trade-in credit, the new car must by 10 mpg greater than the trade-in – that will result in an enormous saving for that household. I think an equity argument could easily be made for this programs as well as the economic stimulus and environmental improvement.

  • If equity were taken into consideration, the program would have allowed the purchase of used cars, transit, or bicycles. Since it didn’t, there are already signs that used cars may even inflate in value, hurting the very people who are barred from participating in this program in the first place.

    The poor are either not driving or no where near able to come up with the 20K+ for a new car. Then there is the slightly-better-off class (I consider myself here) that would be able to spring for a new car with this subsidy by using it for a down payment on a loan. I’m not sure if pushing these folks in this direction is the best thing for their long-term financial stability, however. Especially with a very tenuous employment situation.

    This is a time for scaling back and changing course, not full steam ahead with the old way doing things.

  • Ian Turner

    Irwin,

    If this program doesn’t effect oil consumption, isn’t that the same thing as saying that it doesn’t affect carbon emmissions or criteria pollutants?

  • Ian, when a car is scrapped and its replacement gets 10 mpg more, and assuming its driven the same mileage as the replacement (yes, huge assumption…good for another article there), the carbon emissions and oil consumption FOR THAT HOUSEHOLD are HUGELY reduced. However, I was responding to minuscule aggregates savings reported by energy crunching analysts in Reuters: Clunker scheme a tiny boost for U.S. fuel efficiency. Critics are a dime a dozen….

    Daniel et.al:
    Contact your Senators today and have them consider the Sen.Feinstein bill (D-CA),S.247 to replace the current program.
    “Vouchers would range from $1,500 to $4,500 and could also be used for mass transit.
    I share your concern about the lack of modal opportunity. Alas, Feinstein lost and Rep. Betty Sutton, D-Ohio,and Sen. Debbie Stabenow, D-Mich. won that debate….

  • The “ethanol industry” (i.e. corn growers) are upset that their massive subsidy might be raided to provide a massive subsidy for someone else. Rent-seeking at its finest.

  • Jim Mearkle

    $1B would fund a whole lot of sidewalks…

  • Larry Littlefield

    You need to get 10 mph more to get $4,500 when trading in a car.

    But for those who took the socially sanctioned route of getting a low mileage SUV, a 1 mph gain will get you $3,500, I believe.

    As existing SUVs get bought, new ones will be built.

  • Irvin, I do agree that the Feinstein bill is much better than the one we’re currently stuck with, but I don’t think the Senate can change anything now. The House has already gone into recess, and the money will run dry by Friday. It’s all or nothing. I think the environmental community should know when to fold their hand, even if they thought it was good at first.

  • J. Mork

    Also, don’t the CAFE rules stipulate the average fuel efficiency of all cars sold by one company? Selling a few more “high” mileage cars will just enable the car companies to sell more low mileage cars to someone else.

  • My apologies – it’s the current program or nada, as Daniel above noted. And yes, the trade-up requirements are way too lax for SUVs and large trucks/vans – anywhere from 1 to 5 mpg as opposed to the 4-10 mpg for cars, as Larry above notes.

    However, as I heard NPR: Senators Debate Clunker Extension” this morning, “80% of the trade-ins are trucks and SUVs, Ford Focus the most popular vehicle purchased, and 10 mpg the average increase in efficiency for the new vehicle over the trade-in”, it would seem the American public are truly using this program wisely – reducing both carbon emissions as well as criteria pollutants.

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