Cash for Clunkers - Destroying Wealth

Great Debates
61

Do you think there is a great deal of interest on the part of lower-income folks to tune up their cars? Perhaps if these tune ups were entirely free and were provided on a very generous schedule, there would be some number of takers who would participate that might approach a level that would make the endeavor worthwhile.

You could probably improve the emissions of those vehicles that were in bad shape by some proportion, but you wouldn’t be able to increase the overall fuel efficiency beyond its off-the-assembly line peak, or likely even to equal that original level.

And are these replacement parts produced in some fashion that they don’t release CO2 when they are manufactured?

Finally, would the larger economic impact of a marginal-car-makeover program be measurable?

62

Assumption but last I heard steel was going out of the country and that rates were at an incredible low.

63

Just taking a guess, but I’d bet it’s because a lot of 35-40 MPG cars are quite expensive. At that level you’re looking at pricey hybrid versions of the Civic or a Prius or something similar.

64

Everyone should read that NY Times article, which describes the incredible SNAFU this is turning into.

For example: Many of the dealers this is supposed to ‘help’ are getting screwed. The governmnent’s web site keeps crashing, and there are many arcane requirements and clauses that are delaying payment. In addition, the dealers are having a hard time figuring out if they will still qualify, so they aren’t sure if they should sell the cars at the discount. This is actually hurting sales at some dealerships. At others, they’ve tied up tens of thousands of dollars, and are now waiting for reimbursement. In the meantime, they’re having cash trouble.

Then there’s the problem of what to do with the old cars. And here’s a classic unintended consequence: It turns out that the scrap price that dealers usually get (and which they have worked into the price of the car they sell) isn’t valid any more, because the scrap dealers make a good chunk of their money from selling off the engines and transmissions of the cars they take in. Since those have been destroyed, suddenly the scrap dealers don’t want to pay for the old vehicles. So dealers who assumed they’d get scrap prices are taking a loss.

We still don’t know how this is going to affect the used auto parts market. Dealers who sell things like used mirrors and body parts are going to find the market flooded. On the other hand, over the medium term there will be shortages of engines and transmissions, which will drive the prices up on those items. It’s certainly going to add a lot of uncertainty to the business plans of scrap dealers and the used car industry.

The NY Times article also says that the program was so watered down by special interests that most people don’t think there will be ANY net emissions savings. For example, under this program you can trade in a truck for a new one that only gets 2 mpg more than the old one. So a lot of perfectly servicable trucks could be destroyed for the dubious benefit of saving 2 mpg.

Financially, the short-term nature of this program is probably pushing people into buying cars who can’t really afford to do so, which is going to eventually increase default rates and stress the financial system even more.

65

I don’t know what the schedule has to do with things, but sure - a standard “tune up” seems to cost now between $100 to $200 as advertised locally. What saves more petrol - covering 20 $200 tune-ups that could improve gas mileage by 2 mpg each (a net improvement of 40 mpg), or paying $4000 so a single person can upgrade their 15 mpg car to 25?

Sure.

I contend that the CO2/benefit ratio for the parts I’m talking about is much, much less than the CO2/benefit ratio for making an entire new car from scratch.

Not being snarky, but why not?

66

I see…I’ve done some looking into it, and you’re right, there are not a lot of 35 mpg city cars, something which is abominable in this age. OK, if we drop the requirement down to at least 30 mpg then we would have some more flexibility.

67

I’m not trying to convince anyone of anything, because I don’t have a position. And why don’t I have a position? Because I don’t know even the most basic facts. It’s called not jumping to conclusions without all the relevant information.

68

Says who? You mean to say if you took a group of people performing some function for a modest profit, and by fiat declared them to be part of government, they would instantly become inefficient, simply by magic? Is it God’s Will?

This is dogma, Fruitbat. It is witnessing. “Government” is not a discrete entity that has characteristics, it is what it is wherever it is practiced. Some governments are wretchedly awful, some are not.

More to the point, good government is about justice, not efficiency. Democracy is not more efficient, it is simply more just that the governed consent to the government, or alter it according to their wishes.

69

An exchange between a willing buyer and a willing seller is intrinsically efficient. Each party can evaluate their costs and the benefits of the exchange and reach an equilibrium. You are right. Government doesn’t care about that. When justice is necessary, government is valuable.

So is my buying you a car justice?

Is there any social or environmental program that you would deem as either money unwisely spent, or an intervention of government into the economy that is unwarranted? If there is I would love to know where you draw that line.

70

So your goal in this thread is to wag your finger at everyone for having opinions, some of them based on experience, and not having run all the numbers in advance as a research effort.

I mean fundamentally you’re correct of course - the less facts and experience which are available, the less value there is in an argument or position. But this isn’t GQ, and there needs must be a large amount of opinion and WAG in these things. I assure you that if we were arguing this in GQ I would have at least some numbers myself to throw into the fray.

I contend, however, that some factors are prima facie benefits - for example, whether or not a tune-up which costs $200 produces less CO2 per mpg improvement than upgrading to a $20,000 new car. Sure you cannot easily exceed the baseline mpg of the car, but if that benefit is applied to a much broader population, the net effect is much greater. This goes back to the whole deal of “how many millions of barrels of oil could we save if people would just keep their damn tires aired up to the proper inflation pressure.”

Repairing a clogged catalyst is a more dubious benefit - some places charge as much as $1000 for a new catalyst, and you might only gain 1-2 mpg from the fix. But run the numbers with me - if we assume only 1 mpg per clogged catalyst, at a $4,500 maximum cash for clunkers benefit, that means the break-even is a 4.5 mpg improvement. BUT - that does not include the CO2 cost of producing the car, which as Cecil says here could be from 12 to 65 tons of GHG emissions per vehicle: What’s better for the environment, a scooter or a car? - The Straight Dope

Now if we take that old rule of thumb that 1 mpg over 10,000 miles is about a ton of CO2, and we assume a differential mpg between 4.5 fixed old cars/1 new car of 5.5 mpg (let’s round up to 6), and assume…shoot, let’s take a mid-range value of 35 tons CO2 per new car, and we assume 10,000 (aggregate) miles of driving per year, then even in the case of the dubious benefit catalyst replacement of just 1 mpg, we get a break-even of about 6 years until the new car mpg benefit.

I’m sure there are several ways we can run the numbers for a variety of improvements - tires can be a good cost-benefit, as higher-mileage and higher mpg-tires could improve economy by 2 mpg for, oh, $600 or so. YMMV (pun intended).

71

I meant that nobody would participate, or that people would not spend, in aggregate, enough money to stimulate the economy if the program was limited to repairs that would fail to excite most people.

Many, if not most people cannot afford a 40mpg car that has similar specs to the one they have. They are not that common. Many blue collar workers can’t get by with a smart car, or civic hybrid.

:dubious: If you prefer, do people having “trouble with money” typically buy new cars?

You don’t think it’s easier to keep track of improvements on a house or businesses as opposed to vehicles? Aren’t the things you mentioned tax rebates as well?

72

Assuming the rationality and honesty of both participants, yes. But if a retarded person is conned into buying something he doesn’t need, or cannot afford, he has not “reached equillibrium”, he has been screwed. When self-interest declares the value of disrupting the equillibrium, it tends to happen, no?

If all people were honest and moral, the sacred Free Market would work just fine, it would simply be a device for moving resources about. The efficiency of trade is based on that, when resource is moved from where it isn’t needed to where it is, benefit ensues, along with penis and hilarity.

But that is the efficiency of trade, which you attribute to the mysteries of the Free Market. Which, I say again, does not, has not, and most likely will not ever, ever exist.

73

If you’ve got an old 1970 Boss 302 Mutang I’ll give you $4,500 for it. Hell, make it an even $5,000.

74

We can drop the fuel economy to 30 mpg as I mentioned up above. Does that help?

If my experience in life is any indication, yes.

I made no claim about it being easier. I say it’s eminently possible based on other tax-rebate and tax-deduction programs. If it becomes the auto shop which sends in the rebate (just as right now the dealer is the one sending in for the rebate, yes?), then the consumer has minimal effort. Will some shops cheat? Sure, everyone cheats at taxes. Does that mean we just wave our hands and give up?

Seriously, was my idea so radical and off the rails? Really?

75

My goal was to point out that the main criticisms in this thread were missing key premises to proving their conclusions. In engaged your criticism directly because I thought it came the closest to making a complete argument.

Your argument is that an alternative program exists which could capture the same benefits of this program at lower cost. Even if this is true, it doesn’t prove the conclusion of the OP which is that the program is a net destruction of wealth. It just proves that some other program would have a better cost-benefit ratio. That’s a significant point to make, even though it is different from the OP’s argument. But in order to make yours an argument against this program, you need to prove two more things: that your program is politically feasible, and that it is mutually exclusive with the current program (either financially, or as a matter of political capital). Otherwise, you’re not really advancing an argument against the current program so much as criticizing Congressional inability to past the best possible program or suggesting a good idea.

But, of course, your alternative doesn’t capture all the benefits, and it captures some that the existing program does not. So in order to really compare the two, we have to quantify some other things. How much is the added safety or new cars worth? What is the relative worth of decreasing ghg’s versus decreasing the particulate matter emitted by car engines? Is it better to concentrate our emissions at single points like factories, or to have it be emitted by moving sources? How much will the enforcement of the two programs cost? What will be the stimulative effect of each program, if any?

I’m not saying we need to have exact numbers of this stuff. But I think we at least need to consider those factors and make reasonable guesstimates before forming a conclusion.

76

OK, I understand where you’re coming from now; that makes sense. I believe the OP is correct, but you are correct, I am not addressing his point directly in support of it, only indirectly.

77

Late to the party as usual, but why does the OP think the government is targeting particular vehicles? (And furthermore what kind of idiot would trash a perfectly good 2000 Passat?) It’s a real “Eye of Sauron” vibe I’m getting, like the government is looking to deprive us of something when really the program is paying us to turn our shitheaps* into cubes.

  • Full disclosure: I have recently partaken in the program for the full $4,500 for a vehicle I cannot sell and had otherwise pledged to “run into the ground.”
78

Because the incentive for someone to get a tune up is pretty low, so to encourage people to partake of it, you’ll have to make sure it is convenient for them to do so.

A tune up will yield about a 4% increase in fuel efficiency, or .72 mpg improvement for an 18 mpg vehicle. But, if you could get 40 people in for tune ups and each get the $100 deal, you would get 28.8 mpg improvement over those cars. If all we were interested in was improved fuel economy, and assuming that this program would be popular enough, the Cash for Tune Ups program would be better.

Spurring new auto sales and consumer spending, however, would have a much greater economic impact than scores of tune ups would.

And I contend that it isn’t. Hey, contending is pretty easy!

I would guess that at best for the $100 tune up, you might get new spark plugs and perhaps an air filter. Okay, I’m sure that you, in actuality, probably could see the economic benefits of 10 million tune ups, as money is distributed through auto mechanics and spark plug manufacturers, but it pales in comparison to the approximately $4.3 billion you are pumping into the economy through the sales of new cars ($1 billion in government funds and $3.3 billion assuming $15,000 in consumer funds per vehicle).

Given the initial consumer reaction, I’m sure that the CARS program will also be a much faster stimulus than the 10 million tune ups program.

79

Where, by the way, did this assertion that the transmission would need to be disabled come from. It doesn’t appear to be the case in the documentation of the program that I have found so far.

80

Perhaps, but the devil is in the details, and whether you can actually get the program implemented.

No, but the problem it doesn’t begin to address the all of the things the current program addresses. First, it doesn’t promote private spending. Talk all you want about the government cash involved, the big picture is that private consumers (in many cases) are committing to spending several times that on the purchase of a new car. That’s one of the main points. We need people to spend money until we get the economy sorted out.

Second, your program doesn’t help prop up the domestic car industry.

Third, it doesn’t take old cars off the road. Even fixing old cars will often not make them as fuel efficient as a new car. Not to mention that newer cars are generally safer, so you can expect fewer serious injuries in car crashes.