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CARS Program is actually a C.R.A.P. Program

June 15th, 2009 · 10 Comments

Amid the supplemental appropriations bill (warning, 144 page pdf), currently awaiting vote after a Conference Committee, is the Consumer Assistance to Recycle and Save (CARS) Program (pages 52-58). Naming bills in deceptive and often cutesy terms has truly become an art form. The CARS Program merits being in the same zone as the ever-so appealing sounding No Child Left Behind or Healthy Forests, an ever-so appealing name that doesn’t stand up to any serious scrutiny. To put it simply, rather than the CARS Program, this might be more appropriate called the C.R.A.P.P.: Consciously Rewarding Augmenting Pollution Program.

CARS is a program to provide incentives to drivers of old, fuel-inefficient vehicles to buy new, slightly less inefficient vehicles. Often called “cash for clunkers”, the developed legislation is structured in a way that makes it inequitable, inefficient, wasteful (on multiple levels) and (being very generous) very marginally productive re long-term interests to reduce our oil dependency and cut greenhouse gas emissions. The C.R.A.P. Program is a sad comment on special interest influence on Congress along with the inability of logical analysis to influence a program toward something more intelligent.

For background on the legislation (the Conference Committee seems to have adopted the weaker House version rather than the better, although still problemmatic, Senate version), see A Clunker of a Deal?

In short, the bill is promised to target selling 1 million more vehicles before the end of the year and support these three policy priorities:

  • Reduce dependence on foreign oil,
  • Reduce air pollution, and
  • Reduce greenhouse gas emissions.

The bill does this via “cash for clunkers”, vouchers to owners of old vehicles to encourage them to go shopping for a new vehicle and scrap the old one. As an example, when it comes to light passenger vehicles, owners (at least one year registered) of a car rated at less than 18 miles per gallon can receive a $3500 voucher (tax free) for a new car if it gets at least 22 miles per gallon and $4500 if it gets at least 28 mpg.

Why is this a bad bill, on both basic policy and basic analytical reasons?

  1. The fuel saving requirements are absurdly low.
  2. The actual oil demand reduction per tax dollar invested is absurdly low.
  3. The bill, as structured, is overly restrictive in a counter-productive way.
  4. There is a basic question as to equity.
  5. This is structured poorly, using “mpg” which provides less visibility on impact than the better “gpm” (gallons per mile).

Absurdly low fuel savings requirements

One way to judge fuel savings links back to the question of reducing greenhouse gas emissions. In short, how fast will the fuel savings save enough CO2 and other emissions to make up for the new car’s “embedded CO2” (the pollution it takes to manufacture, sell, and deliver the new vehicle)?

When you scrap an old car for a new one, you actually start out having emitted more CO2 than you would have if you had just stayed with your clunker — about a year and a half’s worth. If your new car is more fuel-efficient than the old one, those excess emissions shrink with each mile you drive. Eventually, you reach a break-even point when your new car’s embedded emissions are offset by those emissions you avoided by driving that new car. The time for that to occur is called the payback time. It’s not until the payback time is over that the cash-for-clunkers swap begins to accrue real greenhouse gas emissions savings.

A rough rule of thumb might be: two years or less for an automobile.  Sadly, this bill’s parameters mean that this can actually be over 10 years with the parameters of a $3500 voucher.

And, as well, the bill rewards people for making quite marginal increases in fuel efficiency — not creating significant incentives from moving from a gas hog to a truly fuel efficient vehicle.

Reduced oil demand per tax-dollar invested is absurdly low

A reasonable standard to discuss is how much will it cost per reduced barrel of oil.  This is rather hard to calculate with precision, due to many uncertainties in how the program will actually work out in the real world. But, let us assume that the average, across 1 million vehicles, will be 200 gallons of reduced fuel use per year. (This is potentially a high end estimate of likely savings.) This translates to 200 million  gallons of reduced gasoline demand per annum or a little less than 5 million barrels of cut oil demand. Sound impressive? In fact, this is less than 1/4th of a day’s gasoline demand.  Across the year, this translates to about 13,000 barrels of reduced demand per day, or less than 1/10th of 1 percent of US oil use.  And, the cost: $1 billion. This translates to just about $80,000 of US taxpayer money per barrel of reduced daily demand. This places it well above (more expensive than) many other viable options for reducing oil dependency.

An overly restrictive bill? And basic equity?

If you have an old car, a true clunker, rated at 19 miles per gallon, don’t bother getting in line.  This suggests both a poor structuring element of the bill and a question of equity. This is an equity issue. Those who bought horribly fuel-inefficient vehicles, in the past, will now receive incentives for buying somewhat less fuel inefficient vehicles. Those who bought more reasonably, even if only slightly, have no such support.

This bill should have  been focused on relative fuel efficiency improvements, rather than setting a standard as to the fuel efficiency of the older vehicle.   Why not, as part of this, offer a ‘cash for clunkers’ for vehicles above a certain age (let’s say Germany’s nine years) where the new car is at least some X% more fuel efficient than the old vehicle’s performance? (How about $3500 for at least 30% fuel efficiency improvement and $4500 for at least 50% fuel efficiency improvements? With a top limit for a trade-in?)

Analytically unsound policy

The very underpinning of the bill is broken.  Providing vouchers based on “miles per gallon” provides a distortion that confuses as to the actual impact on reducing annual fuel consumption.

MPG” is far less valuable for an approach for a “FeeBate” or gas guzzler turn in then using a “GPM” or gallons per mile. (Difference between 10 and 20 MPG and 20 MPG and 30 MPG same in MPG but not in GPM. 1st is move from .1 to .05 GPM while second is move from .05 to .033 GPM.) GPM is a much faster tool for understanding actual fuel use (and, therefore, CO2 emissions) impacts of differing automotive performace. GPM is a MUCH better measure if we are worrying about incentivizing, somehow, lower fuel use.  And, using GPM (actually, better, is GP100M: gallons per 100 miles), the standard for vouchers could be quite simple: base this on gallons saved per 100 miles driving.

An 18 mpg car is 5.55 gallons per 100 miles. Moving to a 25 mpg vehicle is a move to a 4 g100m, a savings of 1.5 g100m which might be an appropriate minimum savings for the program to achieve a less than five year payback for the embedded energy.

And, if using gp100m, there would be no need for limiting trade-in vehicle fuel efficiency. The question: achieving the appropriate gasoline savings on a gp100m basis.  Thus, for the owner of a 25 mpg vehicle to achieve the same gp100m fuel savings as that 18 mpg to 25 mpg move, the new car would have to get 40 or more miles per gallong. This would be a move from 4 gp100m to 2.5 gp100m

If we really want to get cars off lots, lets make them reasonably fuel efficient ones based on a sensible measurement method. And, make this something open to all old “clunker” owners who are able to achieve the appropriate fuel savings.

In short … The CARS Program is a load of C.R.A.P.

As Engineer Poet has summarized the situation

This will help clear dealer lots, but it won’t do squat for our real problems:

  • It will not significantly reduce our fuel consumption; we will still be burning far too much to accomplish too little.
  • It will not fix the bad production mix of the auto companies; it adds demand for guzzlers only slightly less thirsty than the ones they’d replace.  But worst of all,
  • It will leave us with a brand-new fleet of guzzlers which will not be paid off for years at the exact time when we are facing radical increases in the cost of oil.

It’s almost as if this bill was intended to screw the country.

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Tags: analysis · automobiles · Congress · Energy

10 responses so far ↓

  • 1 Cash for Clunkers « The Crooked Dope // Jun 15, 2009 at 11:20 pm

    […] Adam Seigal has the definitive post on this: In short, the bill is promised to target selling 1 million more vehicles before the end of the year and support these three policy priorities: […]

  • 2 Jane Hamsher: Jim Cooper: $108 Billion for European Bankers, $0 for Nashville Hospitals « Society Portal // Jun 16, 2009 at 2:27 am

    […] They added $108 billion in loan guarantees for the IMF, bulked it up with the $4 billion crappy “Cash for Clunkers” bill just to buy off members from auto manufacturing states,  threw in some flu vaccines they […]

  • 3 » Jane Hamsher: Jim Cooper: $108 Billion for European Bankers, $0 for Nashville Hospitals // Jun 16, 2009 at 3:21 am

    […] They added $108 billion in loan guarantees for the IMF, bulked it up with the $4 billion crappy “Cash for Clunkers” bill just to buy off members from auto manufacturing states,  threw in some flu vaccines they […]

  • 4 The Bill’s a Clunker, So is the Post’s Take on It // Jun 24, 2009 at 12:30 pm

    […] to its poor structuring and poor standards, the passed Cash for Clunkers bill falls short basically on every legitimate criteria against where it could have taken the […]

  • 5 Buck // Jul 5, 2009 at 9:13 pm

    Great article! I could use a little better explanation on the embedded energy and payback time arguements. I’m not sure the average consumer (like me) can understand the issue with the given information. I’m glad you tried and I do perfectly understand the other issues you raised. I just can’t believe these cars have to be destroyed. That is just so wasteful. My guess is the administration is going to beat their chests and brag about how many new cars are being sold because of the program but what about the people who can’t afford new cars? Those poor people that Obama claims to represent. Less cars available to small lots when so many Americans rely on thousand dollar cars to get to work every day.

    Well. This program, with all its faults, will take unreliable cars (how reliable, writ large, are vehicles under $3500 in value?) off the market. These are cars that would be sold for a cheap upfront cost but have a high operating cost.

    Part of that high operating cost? Paying more for gasoline. This program will help to eliminate some of the most polluting, most inefficient, and less safe vehicles off the road. That is something that makes good policy sense. Sadly, the requirements for improved gas mileage are too weak and poorly structured.

    Wal Mart employees aren’t buying new cars. They are making monthly payments on medical bills, credit card balances, and rent payments. I’m buying a new car this week because I have to have a dependable vehicle and both of my cars have almost 140,000 miles on them. I wouldn’t even consider this option. The CR-V is rated at 22 mpg and my Isuzu Rodeo that I am trading is probably about 18. How is that upgrade something for the government to brag about? I’m not putting my family in a sardine can like a Prius either.

    Sardine can? I would say that Prius is, size wise, lower end of mid-size car. It is perfectly reasonable for four people, with some decent head / other room, but tight (to too small) for five.

    You could negotiate $3500 off a sticker price of just about any vehicle these days. The first 10 to 12 percent of retail is easy to negotiate. Sell your clunker and then buy your car. You’d be better off.

    No. This is only true if your clunker has a sale value above $3500 (or, dependent on trade-in, $4500)> Why? This is not $3500 off sticker price but $3500 off the best price you can negotiate even before mentining the clunker.

    BTW, some motorcycle dealers are already suggesting you can buy a bike under this program but I can imagine some mad taxpayers if that is true.

    Why especially this as a problem? If there is an upgrading in fuel efficiency, would seem to make sense.

    The government buying motorcycles for people. That would be funny!

  • 6 Mark Waldenberger // Jul 24, 2009 at 8:30 pm

    Another thing that is wrong with the program relates to people such as my wife and myself who cannot get funding for one reason or another to purchase a newer car. Even with the maximum deduction under the program, my wife and I would have had to come up with funding for the remaining $14,000+ which is an impossibility.

    Mark — I agree that this is an inequity within the program, which creates (in essence) a niche of “people who bought inefficient cars in the past … which are now worth less than $3500 … who wish to have a new car … who have the resources to buy a new car (cash or loan). This carves out quite a bit of the populace.

    I would much rather that the federal government go back to doing those things which it was empowered to do by the Constitution and leave the private sector alone because, as usual, it really doesn’t benefit people across the spectrum and in the end will cost more than it will ever recover in terms of those it will help and the effects on the environment which I am not totally convinced will benefit anyway.

    In another post, A Clunker of a Deal?, I deal with the various benefits of such a program and discuss some elements for improving — including have a financial mechanism for helping people who are cash tight move into better vehicles. If done right, with a better set of parameters, a Cash For Clunkers program can have a serious set of win-win-win-win benefits that make it sensible government spending.

  • 7 Megan // Jul 29, 2009 at 8:12 am

    This program has been so limited by the Republican minority that it is rendered practically useless. The Senate version as usual was much more generous and sensible. Cash for Clunkers awards those who have bought trucks, van and SUV’s. Most passenger family cars won’t qualify! This is a load of bull..oney! If Congress keeps their record going they will render the Health Care Bill to “eat an apple a day to keep the doctor away”.

  • 8 CFCing Toward a Better Economy? // Jul 31, 2009 at 3:01 pm

    […] I’m among the many who criticized the C.A.R.S. program for fundamental problems in its structure. While I stand behind those critiques, I believed and believe, even as highlighting the structural […]

  • 9 Is it worth $2000 to the country to increase the MPG of one vehicle by say 10 mpg? // Aug 10, 2009 at 7:11 am

    […] is a question that came into my inbox amid an exchange about the CARS Program: Is it worth $2000 to the country to increase the MPG of one vehicle by say 10 […]

  • 10 Cash for Clunkers: More auto-centric nonsense | MEN blog . net // Aug 28, 2009 at 6:26 am

    […] Benefit, Public CitizenVisit: Your tax dollars at work to sell more cars, Baltimore SpokesVisit: CARS Program is actually a C.R.A.P. Program, Get Energy Smart NowVisit: Sustaining the Unsustainable, WorldChanging.orgVisit: Warning: Oil […]