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Posts Tagged ‘Cash for Clunkers’

Anniversary

June 25th, 2010 Comments off

Time flies. It was just about a year ago that ThatCarBlog kicked off with my inaugural post.  A lot has happened since then:  Cash For Clunkers came and went; the American Recovery and Reinvestment Act doled out several billion dollars to help improve the fuel efficiency of our vehicles, primarily through electrification; automobile manufacturers introduced a few new interesting vehicles; a few Toyota Priuses got Christined and took their drivers on a wild ride; oh, and BP broke something that they don’t know how to fix…

Unfortunately, I’ve been busy the past month, and haven’t had time for a single update.  To my recollection though, not much has happened during the past few weeks, automotively speaking.  We’re still waiting for the public release of the Chevy Volt and Nissan Leaf later this year – signifying the mass-market introduction of plug-in hybrid and all-electric vehicles in the U.S.  (One thing that has happened is that a few automotive journalists have had the chance to drive the Leaf, and were quite impressed!)  Mercedes did reveal the first prototype of the all-electric version of their SLS AMG, which is drop-dead gorgeous, although the color-scheme for the prototype is questionable…  Tesla Motors’ initial public offering of stock is right around the corner, with much speculation as to whether it’ll be a success or a flop.  …Oh, and BP has done basically nothing to stop the oil-geyser that they created in the Gulf of Mexico, despite spending over $2.3 billion.

…OK, so maybe a lot has been going on in the last month. The automotive world doesn’t stop just because I don’t have time to think about it.  (Or because the World Cup is happening.  …Hhhmmm, maybe that’s why I haven’t had time for ThatCarBlog in the last couple of weeks!)

Anyway, Happy Birthday to ThatCarBlog.  Thanks for reading!  Now, it’s time for Brazil v. Portugal!

The Hangover

October 1st, 2009 Comments off

I heard a story on NPR today about what auto dealers are calling the Cash For Clunkers Hangover.  September, it seems, was a dismal month for auto sales, primarily due to the fact that so many cars were sold in late July and August due to the CARS program.  The two reasons cited are that people purchased new vehicles earlier than they otherwise would have to take advantage of the incentives, and dealer inventory was quite sparse in the post-CARS weeks.

Is this really a story, though? I wrote about CARS prior to the program here, and midway through it here, and stated that CARS had such an explosive effect due to pent-up demand (i.e., people delayed their vehicle purchase due to the economic downturn).  CARS was intended to counteract this delay by accelerating vehicle purchases – essentially compressing time for the auto industry.  Unfortunately, the program was a victim of its own success and was thus short-lived.  So, is it any wonder that sales slacked off after the incentives ran out?  Not to criticize NPR (one of my favorite news sources), but isn’t this story akin to headlines like “Fans Celebrate After Team Victory?”

CARS HangoverOne good point that was made in the story, though, was that perhaps the incentives were too high, and thus too large a market distortion.  Maybe if the incentives had been only $1000 or $2000, instead of typically $3500 or $4500, auto sales would have been stimulated for a longer duration (though to a lesser degree).  …Then maybe the hangover wouldn’t have been so bad for the dealers.

MORE Cash for Clunkers

August 4th, 2009 Comments off

CARSA couple of weeks ago, I talked about the Federal Car Allowance Rebate System (CARS) program, and the effects it might have on the auto industry and the environment.  It turns out, the program has worked a little too well, at least in some respects.  Nearly as soon as the final rules were published, the $1-billion allocated to the program was exhausted.  Now, the House has authorized an additional $2-billion, though the Senate must do likewise for the program to continue.  The debate is now whether or not to spend this extra cash before fully understanding the effect that the program is having.

Obviously, it seems the program was underfunded.  If we assume the average rebate is $4,000 (which is likely not accurate, but it’s the average of the two possible rebate amounts of $3,500 and $4,500, and the math is easy), then the initial $1-billion represents 250,000 trade-ins and new car sales.  That’s only about 1.7% of the yearly new car sales in the U.S. (prior to the meltdown of the auto-industry).  So the fact that $1-billion was burned through so quickly isn’t surprising.  I tend to think the downturn that we had seen in new car sales wasn’t so much a result of people deciding not to buy cars, but rather deciding to delay their car purchases.  With so much pent-up demand, it’s no wonder the CARS program had such an explosive effect.

The program has certainly had an impact on the auto industry.  Today’s Wall Street Journal (Clunker Plan Gives Car Sales a Lift) describes auto makers’ plans to begin increasing production as a result of the boost in sales.  It also mentions that suppliers to the auto industry plan to benefit as well – ripple effects that result in tangible benefits to the economy.

The environmental impact is less clear.  The US Department of Transportation reports that the average fuel economy of new cars being sold under this program is 25.4 mpg, compared to 15.8 mpg for the vehicles being traded in – a 9.6 mpg average improvement.  Assuming these cars are driven an average of 15,000 miles per year (and assuming my previous statement of 250,000 cars is correct), that’s 390-million gallons of gas saved, or over 3.4-million metric tons of CO2 avoided, at a cost of $290 per ton – expensive carbon mitigation by any measure.

…Of course, to quantify the actual effect, one would have to know the baseline – what would have happened in the absence of the program.  (It’s likely that, since traded-in cars were probably bought when gas prices were lower than they are today, their average fuel economy would still be worse than the new cars replacing them.)  Plus, my calculations are so full of my assumptions as to render them pointless.  But, it makes for good blog discussion!

I Have Two Clunkers

July 21st, 2009 Comments off

Most everyone who cares about cars has heard of the Cash for Clunkers program by now.  Basically, if you trade in your clunker for a more fuel-efficient vehicle, you get an instant credit of either $3,500 or $4,500, depending on the type and mileage of the traded-in vehicle and the vehicle being purchased or leased (with  various restrictions).  This program is intended to have the dual benefits of accelerating the transition of our nation’s light-duty vehicle fleet to a more fuel-efficient one, as well as helping to stimulate an auto industry that’s currently in dire straits.  (Plus, folks buying a new car can get a substantial discount – not bad, politically!)

But, what constitutes a clunker?  Essentially, it’s a car that you’ve driven for at least a year, and that has a combined city/highway fuel economy rating of 18 mpg or less.  Also, it has to be newer than 25 years old.  This means my wife’s Buick Enclave, which we bought new in 2007, and which has a combined rating of 18 mpg, qualifies.  My truck, which on its last tank averaged 12.4 mpg, and which doesn’t have an official fuel economy rating, qualifies as a “Category 3” work truck.  We could trade both these vehicles in today and take advantage of the program.

Crushed CarsThis got me thinking – I wonder how effective the Car Allowance Rebate System (CARS) will have been once it concludes on November 1 (unless funds run out first).  The goal of stimulating the auto industry will almost certainly be reached.  It’s the other goal that worries me.  Who will take advantage of the program?  If consumers who had already planned to purchase a new vehicle are swayed towards a more fuel-efficient choice because of CARS, then that would be wonderful.  On the other hand, if folks are tempted to trade-in a nearly-new vehicle, or one that doesn’t get driven very often, simply to get their slice of the government pie, then the overall benefit could be negative.  After all, the program mandates that traded-in vehicles be shredded or crushed (and hopefully recycled) so that they aren’t resold as used vehicles.  And using my truck – which I probably drove less than 3000 miles in the past year – as an example, the net environmental impact of building a new vehicle (and scrapping the old) is likely negative when that vehicle is rarely used.

I hope the CARS program proves to be an effective mechanism for reaching both goals.  But as for me – I’m keeping my two clunkers.