Cash for Clunkers by the Numbers

Government officials ALWAYS focus on intentions, never on results.  Now these same brilliant minds are holding up the Cash for Clunkers as a HUGE success.  Really?  Let’s crunch the numbers…

A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons of gasoline per year.

A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons of gasoline per year.

So, the average “Cash for Clunkers” transaction will reduce US gasoline consumption by 320 gallons per year.

The government  claims 700,000 vehicles were sold – so that’s 224 million gallons/year.

That equates to a bit over 5 million barrels of oil.  5 million barrels of oil is about ¼ of one day’s US consumption. And, 5 million barrels of oil costs about $350 million dollars at $70/bbl.

We all contributed to spending $3 billion to save $350 million. How good a deal was that ???

That’s pretty much what I expect out of any government run program.  They’ll probably do a better job with health care though.

Hat-tip to Robert V.


Comments

  1. You do realize its 350 mil for only the first year it also saves that much next yea

    r and the year after and the year after… They say car are designed to last about 150,000 miles or 10 years so if these cars stay in service for the average time didn’t the government spend 3 billion to save 3.5 billion??

  2. What about lower emissions? Did that issue just disappear because the piece you cut-n-paste didn’t address pollution?

    Why not include the line from the BusinesWeek link:

    “The bottom line: The program did its job, but with just $3 billion in funding its mission was always going to be limited.”

    And where did the quote come from? Citation or link, please.

  3. I would certainly welcome every contributor to the round table of meaningful discussion, but I feel I see some shortcomings in the Substance department.
    Now if we wish to rate the Clunker Story by the punch below the belt to our current President it would have to be rater A-Plus.
    On the scale of economic reality it looks more like a 4-F.
    Johnny already pointed out that on the long term scenario it is a 5 Billion positive gain. I will not hold that against Pappa, because I know 5 billion dollars is difficult to comprehend, for most of my contemporaries.
    The effective positive gain to individual comfort by reduced emission and savings for the abatement of pollutants is difficult to estimate, but on the conservative side of the equation, it translate into at least 10% of the above mentioned 5 billion crude oil savings in pollution cleanup cost and Cap and Trade taxes, which we all eventually would have to pay. So there is another.5 Billion dollars saved.
    Remember Corporations do not pay for anything; they pass it through to us the consumers.
    What I really would like to point out is what the cash for clunkers achieved as an economic stimulus for the American employees.
    I will use Pappa’s numbers, so there can’t be an argument.
    Conservatively estimated, the working time for employees that goes into each automobile that is delivered to a customer is approximately 150 hours. That includes of course every minute computed and averaged over all units, subcontractors, accessory suppliers, design, production of material and shipping and assembly down to the last in the chain, the dealer, the salesman, the finance officer and the clerk at the finance company, and the person at the MVD who issues the license plate.
    Now then, taking Pappa’s 700,000 cars that translates into 105 million employee hours.
    Assuming that employees work 40 hours a week and 50 weeks a year (minus Vacation) or 2000 hours per year per employee and that computes into 52,500 individual being hired or re-hired for a period of 12 months.
    That is 52,500 new jobs, or 52,500 jobs preserved.
    Now then, let us extrapolate a little further. Every one of those 700,000 cars needed to be newly registered and licensed. Plates and licenses vary widely across the different States but it would not be unreasonable to peg the average fee conservatively at $75.00 per vehicle, and licked-di-split there is suddenly $56,252,000.00 flowing into the budgets of the DMV’s.
    Now I really have not got the time to establish the actual annual income of a window clerk at all the motor vehicle departments but if we can agree it were about 40K per year the continuous employment of 1400 clerks is secured.
    There are many more financial and economic stimuli fall outs associated with “Cash for Clunkers”, but I do not want to wear out my welcome making this an endless post.
    If we absolutely need to denigrate the current administration, let’s just say: no big deal, a similar cash for clunkers was already done elsewhere 75 years ago.

  4. Dear Johnny,
    Let’s take this to the local level. You loan me $300 and I tell you that I will repay you at a rate of $30 a year. Not touching the interest issue, it would take 10 YEARS to get to a break even point. Would you take that deal? I wouldn’t.

  5. Pappa,
    Let’s take it even closer beyond the local to the personal level. Immagine your sister’s newborn child is born with a handicap. The doctor says a particular infusion will give it a chance to live.
    Your sister is 300 bucks short of paying for the treatment, but you could. Would you step up? and would you even care if you ever got it back? Think in those terms,
    Any way you look at it, it was a stimulus that was successful. It not only stimulated the auto industry down to the dealerships, it also stimulated the lending industry, and the insurance industry.

  6. Papatodd if you said to me I will loan you 300 and you pay me 35 a year for ten years then yes I would take that deal. That would mean I get 350 for loaning 300, inflation would go up a total of 17% in 10 years for the deal to be even. That is way above the rate of inflation so its a good deal for me.

    I was not talking about breaking even. I said cash for clunkers will make money in the long run.

    Trust me I am not fan of President but he got this one right.

  7. Johnny,
    Only one problem with your logic, the feds aren’t getting 17% or 7% or .7%.

  8. Papa Todd, the problem with your article is you deliberately chose to provide only an percentage of the truth because you don’t like the ‘Cash for Clunkers’ program. That doesn’t make you accurate, it just makes you one of the gang at Shane’s SA. Welcome, I’m sure you’ll feel ‘right’ at home.

  9. Papa Todd you are right I mistyped, the american people are making 500 million on this deal. So the government spent 3 Billion of tax payer money to save the american people 3.5 billion over ten years. So even using your numbers the american people saved here and cash for clunkers worked. I am glad since my mistype was the only issue you agree with the premise that the President got this one right.

  10. Kenny,
    You are 100% correct. I do not like the federal government getting involved in any free market system. Everything politicians touch they foul up, Fanny, Freddie? Disasters. Amtrak? Disaster. Post Office? disaster.
    As a business owner, I have to worry about RESULTS, not intentions. I have to watch the bottom line and insure that my business’s are profitable. I do not have the luxury to tax people or print money.

  11. papatodd, I would hate to patronize a business person who deliberately misleads customers to get his way. How about dropping the moniker, tell us who you really are, and we can let the free market judge your ideas?

    BTW, when did natural disasters become part of the free market?

    Thus far the only RESULTS we have from you are a penchant for bending facts to suit your opinion and the inability to take responsibility for those dishonest choices.

  12. Mr. Horst,
    I would have to disagree with your acounting of what jobs have been saved/ created, and the dmv jobs. This cash for clunkers program was a month program (well almost). The auto manufactures are not remaking autos, they sold off inventory. They are not re-hiring people, they sold off inventory.
    And the auto dealerships are now empty, with no people buying more cars, they too will be letting people go. Many of them have yet to recieve the “rebate” that was given for the clunkers program. How will they meet payroll, pay commissions? ect.

    MDV is not hiring more people for the one month surge in reg.It might have “shored up” thier bottom line, but will not create more jobs. It will take more than a month surge to create more jobs.
    Then there is the “700,000” cars that were “sold” to people, who probablly took loans for thses cars, not sure if they will have a job next year, which will then lead to reposession, or just destruction of these cars (you can never tell what people will do.) Already the “repo” for unpaid car loans is high, and now we have encouraged more people to get into debt for a new car?

    And last in my “rant” is the resale auto industry. The clucker cars are to be destroyed. So lets say that I need a part for my “clunker” that I could not replace. where do I go to get that part if these cars are destroyed? What will my junkyard, used parts place do for inventory?
    How about the resale value of the car that the dealer could have gotten if they were able to resell instead of destroy?
    I know that I am probably prejudice against (any) government involvment in my life, but in my business, a one month surge is not going to sustain my family for a year, nor will it allow me to hire more people. It might allow me to pay off a few more debts that month, but long term it hurts more than it helps. It increases my income( thus paying more taxes) skews my “bottom line” with credit companies, and in general creates more paperwork for me.
    I would prefer a steady income growth monthly in business, rather than a surge once, then nothing.
    Let’s work together to get any government out of private industry, and let them keep with the job they are supposed to do.
    Protect our boarders and our country from threat from other nations.

    Just my thoughts to this horrible program. It might have been a success for the manufacturer, inventory is down, but I do not see it as good for the people in the long run.
    We won’t get into the “environmental” aspect. That is just to much for one post.

  13. Carolyn,

    I hate to say but some of things you said are just untrue… A quick google search finds multiple articles about US Auto Plants rehiring workers.

    http://www.nytimes.com/2009/08/19/business/19gm.html?adxnnl=1&adxnnlx=1253826056-LdGRLDnH3rIhiydgErAwsw

    http://www.newstin.com/rel/us/en-010-018019169

    These two articles that I found in 20 seconds on google, account for over 2000 manufacturing jobs that were brought back because of cash for clunkers.

    So when you say, “The auto manufactures are not remaking autos, they sold off inventory. They are not re-hiring people, they sold off inventory.” You are lying.

  14. I stand corrected Johnny,
    I did not realize that 2000 rehired workers in Michigan, Temporally was a great thing in this economy. You are right. That GM hired (in Ontario and Ohio) 2000 people is a great success. and Chrysler just hired a Whooping 800 people (temps) to putin 60 thousand cars.
    This is not what the Aug. reports said, but it is the actual numbers as of 9/22/09
    GM PLANS, (if sales keep going) to put on a third shift in 3 of it’s plants early next year.
    Try getting up to the real time Johnny,
    The numbers are not there.

  15. Carolyn,

    Go and ask those 2000 employees and their families whether they would like to have no job at all or a temporary job while they continue to look for others… I wonder what they would say…

  16. Johnny,
    Go ask those 36,000 layed off workers if the program is working

  17. papatodd,
    The problem is your math. Your formula and thought process is flawed. You got all the per car gallons right, but you should be dividing the gallons by 20, not 42 gallons in a barrel. Why you may ask use 20 gallons; out of each barrel of oil only 20 gallons is refined for gasoline. That minor detail changes the numbers.

    So, if you use your correct numbers of 800 gallons a year for a 15 mpg car; and 480 for a 25 mpg; then divide 800 by 20, and 400 by 20; you can come up with a barrel per car use per year.

    So, it is 40 barrels of oil each year for a 15 mpg car, and 24 barrels of oil each year for a 25 mpg car. The difference is 16 barrels of oil per car.

    So to come up with the total difference by use the “Cash for Clunkers” or CARS program, take the estimated 700,000 cars; you multiply the 16 barrels per year saved times 700,000, giving you 11.2 million barrels saved.

    Finally for the cost saving you take the 11.2 million times your price of $70 a barrel of oil, and the savings is $784 million annually.

    So if your example is true, than the return of investment, or ROI, for the program would be around 4 years or FY 2014. Over ten years the ROI would be 7.84 billion.

    The source for the gas per oil barrel; the Department of Energy and American Petroleum Institute

  18. Carolyn,

    ooh so now people are getting laid off because of cash for clunkers?? Its nice to try and throw out something that has no relevance to the cash for clunkers program…

    Just accept it, this program was popular, people were hired and even using papatodds numbers the 3 billion we spent as a country on the program saves us 500 million over 10 years.

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