Wednesday, August 5, 2009

Clunker Update: Bad Math

Just last night, I was talking about this program screwing over the poor in favor of the middle class... Well, Ken Belson from the "Wheels" section of the NY Times yesterday has some revealing numbers worth sharing:
The relatively small differential suggests that consumers have not been turning in the oldest, dirtiest and least fuel-efficient cars, but instead have been getting rid of their second and third cars, according to Art Spinella, who ran the survey.

“These are third cars used for kids in school,” Mr. Spinella said.

The vehicles that consumers bought with their credits had average fuel efficiency ratings of 24.8 miles a gallon, he said.

Lawmakers hoped the “cash for clunkers” program, formally known as the Car Allowance Rebate System, would reduce America’s dependence on imported oil. But the early results of the program suggest that may not happen. The vehicles turned in were driven about 6,000 miles a year, he said. If the new vehicles are driven about 12,000 miles a year, the rough annual average, then consumers will actually use more fuel, not less.

“The energy independence argument did not ring true, at least so far,” Mr. Spinella said.

He added that the average annual income of those who bought cars with their rebates was $57,700, just under the $61,000 for all new car buyers these days. That suggests that consumers with the lowest incomes who, in theory, need the rebates most, are not benefiting from the program.

The program started out at $1 Billion. Chuck Schumer is trying to get an extra $2 Billion... The program is wildly popular (apparently government people are surprised that passing out free money to middle class people is popular...) so he will probably succeed. Incidentally, Tim Carney of the Washington Examiner writes:
One lobbyist for this bill was Nucor Steel. In Cayuga County, N.Y., Nucor turns scrap steel into sheet metal and other steel products. The clunkers are now becoming a subsidized feedstock for Nucor, which helps explain why Sen. Chuck Schumer, D-N.Y., has led the push for $2 billion extra in clunker cash.
So yeah... We should all be shocked that Schumer wants more money for the program.

But what does this really mean? Well... The average pay out would be around $4,000 ($3,500-$4,500) per car. So for $1 Billion in available money - that would be 250,000 cars scrapped.

Naturally, if we added an extra $2 Billion to the program, then we will have scrapped 750,000 cars!

Now we also know the following:
  1. The bulk of people using this program are firmly middle class with their average salaries at $57,000 a year.
  2. The majority of cars being traded in aren't significantly lower in gas mileage than cars being purchased
  3. The old "clunkers" are typically 2nd or 3rd automobiles currently being driven short distances, and mostly by teenagers.
I'm struggling to find specific numbers on the amount of used cars sold in the US in a year, but I've discovered that the total car sales for 2008 was around 16,000,000. So let's say Schumer gets his (and his lobbyists') wish and they get another $2 Billion and demolish another 500,000 cars.

750,000/16,000,000 = 0.046...

Nearly 5% of the total cars sold in the US for a year are going to be destroyed. Not only that, but probably the cheapest 5%. So what's that going to mean? Supply goes down by 5%... Prices go... Up!

Who's that going to hurt? Poor people. Lots, and lots of poor people.

So let's recap:
  • Helps the environment with increased fuel efficiency? Nope.
  • Reduces costs over time? Not on your life.
  • Helps the middle class & rich get new cars? Definitely.
  • Helps the poor get new cars? Not even a little.
  • Hurts the poor? And how!!
  • Takes money from non-drivers to subsidize drivers? Damn right.
  • Makes everything more expensive later? YES!
  • Helps car manufacturers? Sure... But only until short-term demand is met and we see sales plummet even further next year when fewer people want/need to buy new cars than they would have otherwise.
  • Helps Nucor Steel Company? Ohhhhh yeah!
  • Helps POLITICIANS get re-elected? Big Time.
  • Costs $3 Billion in money that the U.S. doesn't have? OMG Yes. And we won't find out how much the interest on this idiocy will cost us until later on.
Crikey this is retarded.

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