Get Energy Smart! NOW!

CFC, Cash For Clunkers (the Car Allowance Rebate System (CARS) Program), certainly is in the news today. Almost no one expected the massive surge of interest in the program such that, within a week, the program required more funding. Now, in the debate about how to stimulate the economy, there has been a divide between those focused on Wall Street (and some form of trickle-down economic theory) and those who argue for focusing on Main Street, getting cash into people’s hands to spark retail economic activity that will be respent in the local economy and, eventually, trickle up to Wall Street.

Well, the $1 billion that the nation’s auto dealers look to have gone through in just one week sparked, quite easily, $4 billion or more in sales at those dealers. Right off the top, that implies about $200 million (or more) in sales taxes, salaries (commissions) for workers in auto dealerships, work in junk yards for the old cars, etc … We are talking a quick leverage effect, moving cars off the lots, with a trickle up occurring boosting the stock prices of auto companies and their suppliers.

Now, 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 problems, that a “clunkers” program can make sense when well structured.

The House of Representatives has already acted in the face of the $1 billion having gone through so quickly, passing a measure for $2 billion in additional funding. Sigh … from what I can tell, none of the structural flaws have been solved. Yet, the direct boosting to the economy is a major accomplishment of governmental action and could represent the fastest and most widely spread stimulative activity that we’ve seen, to date, of government spending.

Now, one of my critical concerns remains in terms of the structure. The rebates can be had for what are, at the end of the day, truly marginal improvements in fuel efficiency. I am very pleasantly surprised that the fuel efficiency savings are well above the minimums required for getting rebates. A good sign, it seems, that when given the choice and some information and some incentive, Americans are ready to make Energy Smart choices. It looks like the vast majority of those taking advantage of the CARS Program, to date, aren’t interested in doing the “minimum”, but are upgrading at least somewhat better. As per Congressman Jay Inslee, one of the real leaders in the House of Representatives on energy issues:

I want to just make a point that this program has been spectacularly successful from an environmental perspective. It was originally criticized that we did not call for a high enough efficiency improvement of these cars. The people have fixed this problem for us. We are seeing average increases of efficiency of 60% — well, well above what was required by Congress. One car company 78% of the cars that they’re buying are over 30 MPG, 39% above 30 MPG. The American people have had spectacular improvements in the efficiency and the environmental performance.

Here is Representative Ed Markey’s statement:

This program is a win for consumers who are trading in old gas guzzlers for hybrids, a win for our economy and a win for energy independence and the environment as the new vehicles are averaging 60% more fuel efficiency than the junkers being taken off the road.

Some points about the program’s success (in just one week) via statistics from carmakers and cashforclunkers.org:

• 79% of clunkers being traded in so far are SUVs, trucks and vans with over 100,000 miles
• 84% of the new vehicles purchased are passenger cars
• Clunker consumers are getting an average 69% MPG improvement, which will result in an average savings of $750 in gas bills per year
• During the week that the ‘Cash for Clunkers’ program was launched, GM’s small car sales increased 54.8 percent over the preceding week
• The leading Ford vehicle being purchased under the program is the 28 mpg Ford Focus at nearly 30 percent of all Ford sales
• Toyota reports that 78% of their Cash for Clunkers volume were the Corolla, Prius, Camry, RAV 4 and Tacoma, with a resulting average of 30 mpg
• Hyundai is reporting a 59 percent increase in fuel economy compared to the old vehicle—which averaged 140,000 miles

Now, the program remains poorly structured, with its mandates for fuel efficiency far weaker than it should, with a number of troubling inequities, and it helps prop up America’s car culture. Recognizing all that and, even as I wish that they would fix some issues (see after the fold), kudos to the House of Representatives for acting so quickly to add funding to what is an impressively successful government program.

And, lets hope we move forward with other legislation and other programs that work in win-win-win strategies to improve the economy, reduce our wasteful energy practices, and improve the environment. As Markey notes in a Huffington Post piece, this ain’t just about cars people.

With Clunkers in the win column, now is the time to move on other provisions in the Waxman-Markey Clean Energy Jobs legislation that will stimulate other areas of the economy. The steel industry will see a bump from wind turbine construction. Manufacturing workers will be needed back on the line for solar production. And contractors will be put back on the clock making efficiency retrofits for building and homes. As Clunkers demonstrates, smart energy policy is what the U.S. economy needs to get back on its feet.

Here are some thoughts as to paths to improve the program, to build on its successes and make it even better:

• Gallons per Mile (actually gallons per 100 miles” gp100m) is a more effective way of structuring a program around fuel efficiency than miles per gallon.  The logic is strong for a shift from “MPG” to “GPM”.
  • “MPG” obscures the impact of fuel efficiency.  20 mpg to 30 mpg moves gasoline use from 5 to 3.33 gp100m (or reduces a 12,000 per year car’s use from 600 gallons of gas to 400 gallons/year).  A seemingly similar 30 to 40 mpg?  Well, that is a drop from 3.33 gp100m to 2.5, or a decrease in annual fuel use from 400 to 300 gallons. The first “10 mpg” improvement has a 200 gallon per year impact, the second a 100 gallons/year impact.  How many Americans, honestly now, do you think understand this when looking at the car sticker?
  • Yes, this is “complicated” for how Americans traditionally speak to gasoline efficiency, but it is more appropriate and will lead to better results. It really will help drive people into more fuel efficient cars, quickly.
    • Not hard to do it as a “chart” to be sent to every dealer
• The program should have more tiers, not just two.  Very roughly, perhaps:
  • 1 gallons per 100 miles saved: $2k rebate (a really marginal savings in environmental terms)
  • 1.5 = $3.5k (starting to get into the payback legit in terms of full life-cycle energy demands);
  • 2+ saved; $4.5k (Okay, that is roughly 20 to 33 mpg, as example.)
  • An additional $100 for ever 1/10th gp100 mile saving above 3 gpm. (This rewards the huge savers
• The entire basis should be based on how many GPM saved, eliminating the maximum level for the car traded in. (The 18 vs 19 mpg dilemma.) Lots of people are not happy with the 18 mpg restriction.
• There should be a special loan program to help people lower on economic spectrum get access to the potential to buy a new car. (And, having reliable transportation (such as a new car) is correlated with improving economic circumstances.)
• Don’t have the answers / direct structure, but there should be the potential for trading in for motorcycles and even more fuel efficient options. (Why not offer 80% of the rebate value for someone willing to trade in a car for public transit vouchers (and a bicycle)?)
• We should also consider the economic impacts of requiring junking of all parts from a “clunker”.  For example, a comment from a dealer yesterday. “It is a tragedy all the good tires we’ve got to throw out. We have one trade in with tires with less than 1000 miles on them. ”  Is throwing out viable and valuable parts, that create an environmental problem, truly the best choice (even as we get fuel inefficient vehicles off the road)?
• As the GPM of traded in car gets better, we should figure out paths (if the car is good enough) to keep in the used car inventory. (Thus, would it make sense to “junk” a 25 mpg vehicle traded-in for a 50 mpg Prius?)

Other pieces on the C.A.R.S. Program

• CARS Program is actually a C.R.A.P. Program
• The Bill’s a Clunker, So is the Post’s Take on It
• A note why GPM makes for better policy than MPG …
• A clunker of a deal