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The Headache Continues

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November 04, 2009 – Comments (14)

A few days ago I wrote a blog called Ow! My Head Hurts! about how if the Edumunds.com figures were right, the tens of thousands of dollars per additional car sold under the Cash for Clunkers program seemed like a collosal waste.

A few Fools, perhaps rightfully so, questioned the Edmunds.com data, one in particular saying that, "Edmunds is taking a hot political issue that is receiving all sorts of press, making some weak assumptions, and using the headlines that it is generating from this statement for its own gain." Click here for the original post.

I still can't figure out what Edmunds' "own gain" would be other than perhaps some publicity which draws people to their website (which to me seems hardly worth the trouble, but I digress).  But let's put Edmunds aside for a moment.

How about our friends at the Associated Press?

The most common deals under the government's $3 billion Cash for Clunkers program, aimed at putting more fuel-efficient cars on the road, replaced old Ford or Chevrolet pickups with new ones that got only marginally better gas mileage, according to an analysis of new federal data by The Associated Press.

The article continues:

The single most common swap — which occurred more than 8,200 times — involved Ford F150 pickup owners who took advantage of a government rebate to trade their old trucks for new Ford F150s. They were 17 times more likely to buy a new F150 than, say, a Toyota Prius. The fuel economy for the new trucks ranged from 15 mpg to 17 mpg based on engine size and other factors, an improvement of just 1 mpg to 3 mpg over the clunkers.

As I blogged back in August, I didn't much the idea of the expansion of Cash for Clunkers then, and I like it even less now.

Yes, the average gas mileage for new cars sold under the program was about 9 miles per gallon greater than that of the average clunker traded-in, but c'mon, does anyone really think this program was worth the $3 Billion pricetag?

Now if you'll excuse me a minute, I think I'd better go fetch those few tablets of ibuprophen that I have stashed in my desk somewhere.

Regards,

Russell (a.k.a. TMFEldrehad)

14 Comments – Post Your Own

#1) On November 04, 2009 at 6:19 PM, miteycasey (30.31) wrote:

People saw this coming from a mile away.

 

Just like the scaricity of the H1N1 vacine. Do you really want the government handling all your medical issues?

Ane we'll never get an accurate number of cases.

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#2) On November 04, 2009 at 7:39 PM, Imperial1964 (97.77) wrote:

As for fuel consumption I bet that 9 MPG increase multiplied by the lifespan of the vehicle doesn't cover the total energy used in the production of the new vehicles.

Anybody want to take the other side of that bet?

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#3) On November 04, 2009 at 8:07 PM, blake303 (29.17) wrote:

Anybody want to take the other side of that bet?

I will. Those vehicles were already built. 

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#4) On November 04, 2009 at 8:11 PM, blake303 (29.17) wrote:

I should have added that the energy used to build those vehicles was sunk, so why not improve aggregate fuel efficiency sooner than later? 

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#5) On November 04, 2009 at 8:25 PM, blake303 (29.17) wrote:

Eldrehad - I'm aligned with Deej. You can continue to ignore it, but the math I did in your first post confirms that the cost is worth it (assuming you agree with my assumptions - a 5 mpg improvement, car lifespan of 150,000 miles, $2.50/gallon gas, and 750,000 cars traded in):

 

"On August 07, 2009 at 4:08 PM, blake303 wrote:

((150,000 miles / 15 mpg) - (150,000mpg / 20 mpg)) X 750,000 cars X $2.50/gallon = $4.6 Billion

Using your example of 18 to 23, the savings is $3.4 billion, which still exceeds tax payer outlay and does not include any other savings"

Adjusting down to 690,000 cars, but holding all else equal is $4.2 Billion in savings. Not a terrible return. And that is not even taking the full 9mpg improvement into account, but that would only strengthen my case. Do I think that this was the most logical, well executed program? No.  Will it be worth it in the long run?  I think so. 

 

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#6) On November 04, 2009 at 9:08 PM, fmahnke (89.24) wrote:

Blake,

The problem with your argument as I see it is that if you just pulled future sales forward and  9 MPG is the avg, differnetial between new and trade ins, we wasted all $ 3 B.

For your analysis to justify the outlay, it seems as if you need to aasume that these people would hang on to the old cars for yrs.if not for CFC

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#7) On November 04, 2009 at 10:19 PM, AbstractMotion (53.76) wrote:

I'd also argue that just because the cars existed doesn't really matter if there were less orders and excess inventory the companies wouldn't be producing as many cars until demand actually picked up naturally, which would result in less net energy being used to produce cars.  Which is less materials, CO2, etc.

 

The savings for this initiative are going to be almost entirely focused into the auto industry and the buyers, not the government itself.  I.e buyers saving 4 billion in fuel costs really doesn't equate to the government somehow receiving the same amount of money.  Once again, this is great compared to something like a bank bailout but it doesn't mean that money could not have been allocated a lot better.  The value or productivity actually gained by people replacing cars is largely minimal compared to a good infrastructure investment would could actually improved productivity and lower commute times (which also lowers emissions).  If they were die hard about the emissions part of it, subsidizing home solar installs would likely have a better long term impact and help get that production costs down to make the technology more attractive.

 

 

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#8) On November 05, 2009 at 12:41 AM, USNHR (31.60) wrote:

"that these people would hang on to the old cars for yrs.if not for CFC"

I think the assumption that has to be made is that the car would stay on the road for years if not for CFC, which is a bit different than your statement. I don't know about you but when I have an old beater and want to get a new car, I try to sell the old beater myself, I can usually get more for it than on a trade.

So it isn't hard to imagine that those cars would be on the road for a few years if not for CFC.

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#9) On November 05, 2009 at 1:29 AM, blake303 (29.17) wrote:

fmahnke - The problem with your argument as I see it is that if you just pulled future sales forward and  9 MPG is the avg, differnetial between new and trade ins, we wasted all $ 3 B.

For your analysis to justify the outlay, it seems as if you need to aasume that these people would hang on to the old cars for yrs.if not for CFC

Not quite. This is more than a timing issue. CFC provided an incentive to purchase a more efficient car. For instance, if the people that bought F150s under CFC otherwise would have bought a truck/SUV/sports car with worse or similar gas mileage than their current car, there is a clear benefit to the program that has nothing to do with bringing sales forward. Furthermore, CFC destroyed the engines of the cars traded in. In the absence of CFC, those cars may have been driven for by the current owner for years, traded in immediately for another car and resold, handed down to a family member, etc. 

All of the buyer motives, alternatives, and outcomes are impossible to quantify. However, I can take some fairly conservative assumptions using only a portion of the clunkers turned in and justify the cost of the program using modest improvements in mpg. I am also neglecting benefits that are just as impossible to quantify, but certainly exist. 

AbstractMotion - I agree with fmahnke in that some sales were pulled forward. If these sales were going to occur anyway, just later, then no additional resources were used. 

The savings for this initiative are going to be almost entirely focused into the auto industry and the buyers, not the government itself.

I thought the government was the auto industry and according to Alstry they are going to tax us at 100%, so they will get the money back in no time. Joking aside, I would like to see more funding go towards infrastructure and emissions, but right or wrong, those were not the primary targets of this program.

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#10) On November 05, 2009 at 9:37 AM, TMFEldrehad (99.99) wrote:

Speaking of bad assumptions:

"On August 07, 2009 at 4:08 PM, blake303 wrote:

((150,000 miles / 15 mpg) - (150,000mpg / 20 mpg)) X 750,000 cars X $2.50/gallon = $4.6 Billion

Using your example of 18 to 23, the savings is $3.4 billion, which still exceeds tax payer outlay and does not include any other savings"

The above math assumes that not only would the new car sold under the program be driven for 150K miles, but so would the clunker traded-in!  Sorry, but I just don't think that this assumption is reasonable.

I think it would be far more accurate to take the MPG differential across the remaining life of the Clunker only.  Which would, in all probability, be far less than 150K miles.

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#11) On November 05, 2009 at 9:49 AM, TMFDeej (99.43) wrote:

Hi Russell.  I assume that you were referring to me in your post.  Don't be shy, you can mention me by name if you'd like. 

I don't disagree with the AP's findings.  Dealers have told me that lots of people traded in trucks for trucks.  Despite the government's hiding behind an environmental veil, it really was nothing more than a way to jump start auto sales so to speak.  And that's exactly what the bill accomplished.

The mere fact that you are mentioning Edmunds.com in your blog for the first time ever is all the proof that I need that their plan of using a hot political issue to generate free publicity for itself is working.  The company is a media hound.  It has an extremely active media relations department that it uses to generate traffic for its site.  As far as they are concerned, the more that people are talking about them, the better.

The majority of Edmunds' revenue comes from advertising, which is generated by page views.  To think that it is not benefiting from this free pub is naive.  They are very much so.

I still strongly contend that Edmunds' analysis of the cost per unit of the Clunkers program is a joke. 

I don't particularly like the program either, but you're spitting on a fire here.  The cost of the Clunkers offer is a drop in the bucket compared to the trillions of dollars that politicians have lined the coffers of "banks" to use the term very liberally with.

Deej

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#12) On November 05, 2009 at 10:41 AM, TMFEldrehad (99.99) wrote:

The mere fact that you are mentioning Edmunds.com in your blog for the first time ever is all the proof that I need that their plan of using a hot political issue to generate free publicity for itself is working. 

All it proves is that they got publicity.  I'll grant you that.

It does not prove that they purposefully manipulated their numbers in a deliberate attempt to publish something inflammatory, thereby gaining publicity.  Countless websites publish things, every day, in order to gain publicity and attract eyeballs.  That doesn't mean that the purposefully 'cook the books'.

It's one thing to question the validity of the assumptions.  That's fair, and Foolish.

You seem to at least insinuate that Edmunds purposefully used bad assumptions to gain publicity.  This Fool would require a bit more prove before leaping to that conclusion.

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#13) On November 05, 2009 at 1:07 PM, PeteysTired (< 20) wrote:

TMFEldrehad

What do you think CFC did to the price of used cars?  Did they decrease, stay the same or increase after CFC?

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#14) On November 05, 2009 at 2:16 PM, TMFEldrehad (99.99) wrote:

What do you think CFC did to the price of used cars?  Did they decrease, stay the same or increase after CFC?

I believe that prices for used cars increased.  Apparently, I'm not the only one.  A simple Google search turns up a number of sources making this same assertion.

 

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