Edmunds publishes Cash-for-Clunkers analysis

[mhendo]

I was opposed to Cash4Clunkers from the beginning, despite being, in general, a pretty big fan of Obama and his administration.

I pretty much agree with Sam Stone’s take on this program, and even if the Edmunds figures have a certain amount of wiggle room, the whole thing still cost more than it was worth. Hell, even if the real figure per car is half what Edmunds claims, i’d still be critical.

There’s an article here in which the Chief Economist for the National Automobile Dealers Association criticizes the Edmunds study. He claims that, contrary to the Edmunds figure of $24,000, each incremental car sale cost under $5,000. He says:

“It’s really not that hard to determine a credible cost estimate for the Clunkers program,” says Taylor. “You subtract projected sales versus actual sales for July and August when the Clunkers program was operating, and divide the program’s $3 billion by that number.”

But this methodology makes absolutely no allowance for people who were going to buy a car earlier, but deferred their purchase to wait for the program, and those who would have bought cars later, but brought their purchase forward for the same reason.

The number of deferred or moved-up purchases might not be exactly reflective of the figures that Sam Stone gives, but you sure as hell can’t evaluate the cost-per-incremental-sale of the program without at least trying to take this aspect of it into account.

Also, the White House claimed that the program helped auto sales more generally by getting people into showrooms, but Edmunds, in their response, notes that prices of cars in general rose during the program, adding:

It does, after all, seem a bit odd that masses of consumers would elect to buy a vehicle because of a program for which they don’t qualify – doubly so when you add in the fact that prices shot up during Cash for Clunkers, creating a disincentive to buy.

Hell, even if what the White House claims were actually true, and some people were lured in by the program and still bought cars after finding out that they didn’t qualify, wouldn’t that make this program the world’s biggest ever bait-and-switch scheme?

The program, as quite a few observers have also noted, had a fairly predictable effect on the used car market, pushing prices up. As this article says:

A whole class of consumer for which used vehicles is all they can afford were pretty much given an “anti-stimulus.”

[furt]

@Wesley_Clark

Tons of peopel would love having one functioning car, and we are intentionally destroying ones that work.

As far as gas mileage going up the average mpg of cars traded in was 16mpg, the mpg of new cars bought was 25mpg. Hardly a giant leap. People were not trading in Humvees to buy Geo Metros. The mpg gains were minor.

And these two points connect – we had a discussion of C4Cin my class, and a couple of students mentioned that they wanted to trade their old beaters in, but that they couldn’t afford brand new cars. A more sensible program would have given these kids an incentive to trade in their 12 mpg jalopy for a newer, 18 mpg car. Instead, those cars got destroyed.

On the plus side, a few dozen college kids, overwhelmingly Obama voters, are staring to question the competence of government …

[Wesley_Clark]

@furt

And these two points connect – we had a discussion of C4Cin my class, and a couple of students mentioned that they wanted to trade their old beaters in, but that they couldn’t afford brand new cars. A more sensible program would have given these kids an incentive to trade in their 12 mpg jalopy for a newer, 18 mpg car. Instead, those cars got destroyed.

On the plus side, a few dozen college kids, overwhelmingly Obama voters, are staring to question the competence of government …

I agree. Hundreds of thousands of cars that got 16mpg were destroyed. It was stupid.

A better idea would be to give them to poor people, college students, etc. in exchange for X hours (maybe 500) of community service and community investment. Instead we dumped sodium silicate in the oil pan and ran the engine until it froze up. Who knows how many college students and working poor would’ve been happy to volunteer in exchange for a free car.

Or sell the cars to raise money for charity. They didn’t need to be destroyed.

Yeah, this event for me (as an Obama voter) has made me question the wisdom of some of the ideas (this one seems wasteful on so many levels). But I’ve also worked in corporations and I’m not too impressed by them either. So I didn’t walk away from this thinking that private = good, public = bad. Public and private sectors both screw up at times, and both do things right at times.

[DanBlather]

@Wesley_Clark

As far as gas mileage going up the average mpg of cars traded in was 16mpg, the mpg of new cars bought was 25mpg. Hardly a giant leap.

In what universe is more than 50% hardly a giant leap?

I agree. Hundreds of thousands of cars that got 16mpg were destroyed. It was stupid.

Actually it was brilliant. Leaving them out there would mean that there would be no incremental sales improvement. By removing n cars from the market it means that n more need to be produced.

[Wesley_Clark]

@DanBlather

In what universe is more than 50% hardly a giant leap?

Actually it was brilliant. Leaving them out there would mean that there would be no incremental sales improvement. By removing n cars from the market it means that n more need to be produced.

If you have $20 and now you have $30, that is not a giant leap. A car that gets 9mpg more (25 vs 16) will save about 270 gallons of fuel a year. However we could just increase CAFE standards and when those clunkers died a natural death, people could’ve bought cars that got 35mpg instead.

I don’t think the idea was brilliant. There are serious problems we could be solving to fix our economic woes. According to the american society of civil engineers we need $2.2 trillion in investments in our infrastructure over the next 5 years. We also need to upgrade our energy production. We need universal broadband. We need more scientific R&D. We need universal healthcare and improvements in healthcare infrastructure (better IT, more robotics, better records, etc).

All of these things will cost money to implement and create jobs as well as making the US more competitive in the international marketplace (better and cheaper health care, energy, transportation and communications will make businesses run more efficiently). Instead we are destroying perfectly fine cars to spend money and create jobs. It is wasteful.

And as others have said, by removing ‘n’ cars from the market you also drive up the cost of used autos for people who need to buy used cars in the $5000-ish price range. You are also assuming that the people who buy 10 year old used cars for $5,000~ are the same kinds of people who would buy a brand new car for $25,000, and they are not. All you’ve done is drive up costs for people who are in the market for used cars since that is what they want and what they can afford. If you cut the supply of used cars selling for $5,000, people are not going to decide to buy a new car for $25,000 instead.

[Sam_Stone]

@DanBlather

Actually it was brilliant. Leaving them out there would mean that there would be no incremental sales improvement. By removing n cars from the market it means that n more need to be produced.

I’ve got a better idea - why don’t we produce cars, and then push them off the assembly line into a giant shredder? Think of all the production we’d need then!

Wealth is not production. Wealth is providing goods and services that people need. Production to no end is a waste of resources and makes you poorer.

The logic of a stimulus is that the production is all there, but financial imbalances are preventing the distribution of the grease that runs the economy. Trades that want to happen can’t because neither side has the cash to trade with. This causes your productive capacity to atrophy, which affects long-term wealth. So you inject money. You get everything moving. Done right, you might save more in productive capacity than it cost to re-start it, and you’ll get a multiplier.

However, the downside of a stimulus is that it breaks markets. It distorts prices. It prevents needed corrections. GM was saved, but what of the auto companies that would have gotten GM’s share of the market, and who have demonstrated better practices? What of the people who will be taxed to pay for the billions of dollars required?

And what does our habit of bailing out failed companies tell others to do? Increase risk-taking. When the downside is limited, risks become more valuable. You’re subsidizing risk-taking, and you get more of it.

At the end of the day, what matters is that you come out of a recession with an economy that produces things people need to live and to enjoy. Don’t get so focused on the financial machinery that you lose sight of ultimate nature of what the economy is.

Once you recognize that, you’ll see the fallacy of destroying perfectly good cars in order to increase prodution of new ones. Those used cars represent real wealth - and investments of societal capital and energy. Destroying them made the economy as a whole poorer. Yes, production increased. It might have even saved some jobs in the auto industry. The question is how many jobs were lost to pay for the jobs ‘saved’? And what happens when the stimulus ends? What if those jobs are still not sustainable. You’ll lose them anyway.

On the environmental side, you are producing CO2 and using energy to make those new cars. That has to be counted against the savings in gas over the vehicle’s life.

In another thread I did the math on this - if you assume that the used cars were turned in on average 2 years before they would otherwise have been scrapped, and you know the energy cost a vehicle, you can figure out how much additional energy was required because of Cash for Clunkers. And it’s not a small factor.

This differs from most of the stimulus in that it was a direct effort to use government money to distort a well functioning market. Sales are down because people are being rationally cautious with their money, and because they have less wealth because of unemployment and wage freezes and such. If the market was in fact efficient or reasonably so, then it was to be expected that the stimulus would have some distortionary effect that would correct itself. There would be increased sales, during the program, but over the long term there wouldn’t be nearly as much effect. And that’s what happened.

There would still be an increase because of the direct subsidy of the auto market. But that money had opportunity cost. It could have been spent in many other ways.

[DanBlather]

@Wesley_Clark

If you have $20 and now you have $30, that is not a giant leap.

No, actually it is a big leap. A 50% leap.

However we could just increase CAFE standards and when those clunkers died a natural death, people could’ve bought cars that got 35mpg instead.

Politics is the art of the possible. You don’t think that Obama and other progressives want to raise CAFE standards? It’s the right that has been blocking that, and as a result they enabled billions of dollars to go overseas to fund terrorists.

[DanBlather]

@Sam_Stone

Once you recognize that, you’ll see the fallacy of destroying perfectly good cars in order to increase prodution of new ones. Those used cars represent real wealth - and investments of societal capital and energy. Destroying them made the economy as a whole poorer.

I guess I won’t install insulated windows because my old ones work fine or re-do my kitchen because my old one is good enough. I’ll wait to repaint my walls until the old paint is peeling off. We’ll never replace factory equipment or upgrade to newer computers. We’ll never replace an orchard with a wheat field or replace tenements in Manhattan with skyscrapers. I’ll put tape on the frame of my glasses and patches on my clothes. I’ll sell short on Home Depot and Macys.

[Sam_Stone]

@DanBlather

I guess I won’t install insulated windows because my old ones work fine or re-do my kitchen because my old one is good enough. I’ll wait to repaint my walls until the old paint is peeling off. We’ll never replace factory equipment or upgrade to newer computers. We’ll never replace an orchard with a wheat field or replace tenements in Manhattan with skyscrapers. I’ll put tape on the frame of my glasses and patches on my clothes. I’ll sell short on Home Depot and Macys.

You don’t understand. The fact that you haven’t replaced your windows means that you value other things you could buy with your money more. You are acting rationally. If you choose to replace it without an external stimulus, it’s because it’s finally gotten to the point where either the energy you are losing, or the draft you don’t like or some other aspect has modified your priorities such that you choose to replace the window.

Now I come along, and tell you I’ll give you $20 to replace the window. That amount pushes you over the edge, so you decide to do it. You spend $80, I spend $20, and you get your window.

But understand that we still paid $100 for that window, and you clearly did not value the purchase of an new window at $100, or you would already have done so.

Now I charge you $20 tax to pay for my cost of my giving your the $20. Now suddenly you’re still out $100, and you’ve got a new window - which does not represent $100 in value to you. In the meantime, the thing you were going to spend your $100 on, that you DO value at $100, goes unpurchased.

You are now poorer by the difference between the value you give to the window and the value you would have given to the thing you would have purchased instead.

Now substitute ‘the economy’ for ‘you’.

[Wesley_Clark]

@Sam_Stone

You don’t understand. The fact that you haven’t replaced your windows means that you value other things you could buy with your money more. You are acting rationally. If you choose to replace it without an external stimulus, it’s because it’s finally gotten to the point where either the energy you are losing, or the draft you don’t like or some other aspect has modified your priorities such that you choose to replace the window.

Now I come along, and tell you I’ll give you $20 to replace the window. That amount pushes you over the edge, so you decide to do it. You spend $80, I spend $20, and you get your window.

But understand that we still paid $100 for that window, and you clearly did not value the purchase of an new window at $100, or you would already have done so.

Now I charge you $20 tax to pay for my cost of my giving your the $20. Now suddenly you’re still out $100, and you’ve got a new window - which does not represent $100 in value to you. In the meantime, the thing you were going to spend your $100 on, that you DO value at $100, goes unpurchased.

You are now poorer by the difference between the value you give to the window and the value you would have given to the thing you would have purchased instead.

Now substitute ‘the economy’ for ‘you’.

I don’t agree. Many cities heavily subsidize public transit because people would not pay $200/month to ride the bus. So it is subsidized and a monthly pass only costs $60. However there are benefits to society and the environment to taking the bus instead of using a car.

We do not always live in a rational world where short term self interest leads to long term positive outcomes for everyone. So we use government intervention to manipulate carrots and sticks to give better long term outcomes when people follow short term interests.

As an example, we give tax cuts to companies that do research on life saving medicine. So we add carrots. Fine by me. If they didn’t have those carrots, maybe those companies would be researching newer and better cures for baldness instead of newer and better cures for malaria. If we cut the subsidies (and added higher taxes) for medical research on issues like cancer and CVD, but gave tax credits to companies that researched erectile dysfunction and baldnes, we’d have more medical interventions for those disorders.

Plus there is the fact that if you offer $20 to enough people to replace their windows with newer windows (that will save energy), then manufacturing scales will kick in and soon the windows will be available for $80 without the subsidy. Wind energy grew at 50% last year because it has advanced to the point where it fulfills people’s short term interests in profit. It is cheaper than coal in many parts of the US. However it took decades of public funding of research and funding of construction to reach that point. Without all the public investment up to that point, wind energy would not now be growing at 50% a year.

The C4C plan was a bad idea, but it doesn’t negate the importance of government intervention to manipulate the market into engaging in behaviors that are sustainable, humane and good for all of us.

[Sam_Stone]

That is a different issue altogether. I wasn’t saying that there aren’t rationales for government intervention. I’m saying that this particular rationale is bogus, and I was trying to outline the fallacy behind it.

[elfkin477]

@DanBlather

In what universe is more than 50% hardly a giant leap?

But it isn’t what happened. Instead we live in a world where the most common trade in resulted in people upgrading to new pickup trucks that got 1-3mpg better than the ones they turned it. cite

[RickJay]

@DanBlather

I guess I won’t install insulated windows because my old ones work fine

In fact, it would be stupid to replace new windows if the old ones are still in good working order and not insultingly ugly. In most circumstances you would never, ever make that money back if the window’s in good shape. (Actually, you barely make the money back even if it’s not.) As a practical matter, however, windows have a limited lifespan and usually need to be periodically replaced anyway.

In any event, the issue here is not whether or not people will buy new things to replace old things; it’s whether C4C was a good investment of money. Such evidence as been presented says it was not. If people want to argue it was, they need to start coughing up some evidence.

[DanBlather]

@elfkin477

But it isn’t what happened. Instead we live in a world where the most common trade in resulted in people upgrading to new pickup trucks that got 1-3mpg better than the ones they turned it. cite

No, a 50% increase in MPG is what happened. Your cite confirms that. It looks like “scores” of the hundreds of thousands of trade-ins violated the terms of C4C. If so, the rebates should be returned. Saying that a particular trade-in is the “most popular” does not mean it reflects the majority of cases.

I see C4C as trying to kill two birds with one stone: stimulate sales of new cars and do it in a manner that raises over all MPG and reduces emissions. The payouts happened relatively quickly and had good side benefits. I’m not surprised that people who had pickups traded them for another. Did you expect them to go from an F150 to a Prius?

[zenith]

@DanBlather

And that means what? We wasted resources and made the planet worse? We removed cars that produce greater pollution and replaced them with less polluting models and made the planet better? We removed used cars from the market so overall the demand for new cars increased (is that in the Edmunds analysis by the way)? We removed used cars from the market and poor people have to pay more to buy a car? We removed used cars from the market and the net worth of poor people increased because their car is worth more? You are missing your conclusion.

In general, if people put off buying something new, and make do with something old, that is not good for the economy. It’s also un-American

The flaw in C4C is that the so-called clunkers should have been evaluated car-by-car and the best of them given to people driving stuff that was much worse.

People with GEO Metros and Ford Aspires that got 40 mpg new, but that get 40 m.p. quart of on oil now, could’ve some of those reasonably well-maintained"gas hog, environmentally-unfriendly" Grandpa and Grandma Dodge Dynasties, Buick LeSabres, LTDs, that the owners’ heirs heirs threw on the trash heap to get C4C money.

[mhendo]

@DanBlather

I see C4C as trying to kill two birds with one stone: stimulate sales of new cars and do it in a manner that raises over all MPG and reduces emissions. The payouts happened relatively quickly and had good side benefits. I’m not surprised that people who had pickups traded them for another. Did you expect them to go from an F150 to a Prius?

Probably not. But if one of the central aims of the C4C program is to improve fuel economy and reduce greenhouse gas emissions, then it shouldn’t be subsidizing people who are simply replacing an old beaten gas-guzzler with a newer and shinier gas-guzzler. Vehicles that get less than 20mpg should have been excluded from the new car part of the program altogether.

Also, you’re begging the very question that this thread opened for discussion. If the Edmunds analysis is correct—and no-one has yet proven to my satisfaction that it’s wrong—then C4C didn’t really stimulate new car sales much at all; it just moved them around a little bit. The majority of people who bought a car under C4C were going to buy one anyway, but simply decided the change their date of purchase to take advantage of the handout. To simply continue to state that it did, in fact, stimulate new car sales, is to ignore the not-inconsiderable evidence that it did no such thing. At least, not in anything like the volume that its supporters claim.

[mhendo]

By the way, you can download the details of every singles CARS transaction here. If you have MS Access on your computer, the .mdb file will allow you to run queries on the data.

For example, there were 136,475 CARS transactions where the new vehicle gets 20mpg or less. For a program that trumpeted one of its main goals as better fuel efficiency, that’s pretty bad, IMO.

[Mekhazzio]

@mhendo

For example, there were 136,475 CARS transactions where the new vehicle gets 20mpg or less. For a program that trumpeted one of its main goals as better fuel efficiency, that’s pretty bad, IMO.

And this is a direct result of the final product being compromised to satisfy conservative and lobbyist angst. As originally envisioned, the program was to require both a reasonable minimum mileage of 20 (or 25, it’s been a while now) mpg and a minimum percentage increase in mileage over the vehicle traded in. Both of these were slashed to trivial amounts in the name of bipartisanship.

[mhendo]

@Mekhazzio

And this is a direct result of the final product being compromised to satisfy conservative and lobbyist angst. As originally envisioned, the program was to require both a reasonable minimum mileage of 20 (or 25, it’s been a while now) mpg and a minimum percentage increase in mileage over the vehicle traded in. Both of these were slashed to trivial amounts in the name of bipartisanship.

I’m not sure i understand what point you’re trying to make here.

My complaint here is about the legislation as implemented. I’m sure you’re right that the final bill reflected competing interests in Congress, as well as the lobbying of particular interest groups. I’d be hard pressed to find any bill where that was not the case. An alternative bill was presented that would have led to greater fuel economy gains, and possibly to greater economic efficiency in the rebate scheme, as well as including some used cars, but it was shot down.

My point here is not to say, “This bill is bad, and all the blame should fall on the Obama administration, or the Democrats.” A fair number of House Republicans voted for it as well, and conservative priorities helped to shape the final form that the program took. I’m simply arguing that, whoever proposed it and supported it and pushed it, the program was not an especially wise way to spend $3 billion.

[Mekhazzio]

Mm, yes, a conclusion would’ve been a useful thing. The point that I was flailing towards was that, while the program began aimed at multiple goals, in the end, any environmental or energy conservation benefits wound up being purely coincidental. It’s encouraging that people, on average, did make a much larger improvement than they were required to, but the leniency of the terms revealed the charade. C4C was passed purely to subsidize the auto industry, and should be measured on that criteria alone instead of the ones that got killed in committee.