Exploring the CARS Program: Who Does it Benefit?

[Ivan Seeking]

I just read the details for this. The new car only has to do 22mpg!

However, it must also be better than the old car. If a contractor trades in a heavy-use truck that gets 15 mpg, and replaces it with one that gets 22 mpg, we are still coming out ahead.

 

[mheslep]

Or course, Bush did that.

Yep. And now Obama has the wheel. He can't afford to have them on the federal budget long term, but no action has been take regards their eventual disposition. Anecdotally, I talk socially to some of the folks that work over there on a regular basis, and I'm amazed at the absolute sense of entitlement in what are otherwise great folks - no matter what the burden on the country, they must survive, to be paid large bonuses, and to continue their 'mission'. Obama is running his individual mortgage bailout plan through Fannie/Freddie, so at the moment they're justified in feeling indispensable. My take is this whole credit crisis has likely worsened the mindset there, not humbled it, as if they were the only survivors of a fiery plane crash and now feel a bit invincible. Lehman Brothers might have ceased to exist, but never them. Wall Street'rs have nothing on them in the hubris department.

 

[drankin]

I don't think this program was intended to help the poor. It was meant to stimulate those who have money to spend it. And at the same time look like we are helping the environment.

 

[Ivan Seeking]

CNN just reported that 62% of the vehicles traded in are trucks. Many of those people bought fuel-efficient cars to replace their truck.

 

[mheslep]

... Many of those people bought fuel-efficient cars to replace their truck.

Where'd you get this part?

 

[Equate]

Interesting points:

...cash for clunkers might cause more driving, since new cars are more fun to drive, and more fuel-efficient cars are less costly to operate. Plus, it takes energy to scrap old vehicles and produce new ones, so the net effect of the program might even increase the use of fossil fuel.

Cash for clunkers is therefore just redistribution to certain consumers and to the auto industry; it is more bailout dressed up as environmental policy. Congress should end the program, not expand it.

Source: http://www.cnn.com/2009/POLITICS/08/03/miron.clunkers/index.html

 

[Office_Shredder]

http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/08/03/financial/f082355D29.DTL

Officials said the program is succeeding in improving the efficiency of vehicles on the road. One official said the average fuel economy of new vehicles purchased through the program was 25.4 miles per gallon and the average fuel efficiency of the trade-ins was 15.8 mpg, representing a 9.6 mpg fuel economy increase.

 

[Adrock1795]

My only problem with this program is that, they destroy the engine and and make the sell of the transmission illegal. Those parts would be useful to repair other vehicles.

https://www.youtube.com/watch?v=X0IcIxhd8ks

 

[j93]

Where'd you get this part?

Thats what I was thinking

 

[KingOfChaos]

Did anyone actually read what I posted about this site?

 

[drankin]

Did anyone actually read what I posted about this site?

Yes.

 

[Al68]

So there's an additional 1 billion in the economy that we didn't have four days ago...

Is this a joke? Where is this money coming from, if not being taken out of the economy? Do you believe wealth was actually created by passing a spending bill?

 

[Al68]

One caveat: the seizure of Fannie Mae and Freddie Mac was effectively a nationalization of financial firms (the largest), and we have yet to see how that will turn out.

Fannie and Freddie were government entities to begin with. Their "seizure" was like "seizing" the USPS, not UPS or FedEx.

 

[mheslep]

Thats what I was thinking

I don't doubt that some or 'many' did, but I wanted to get more detail.

 

[mheslep]

Fannie and Freddie were government entities to begin with. Their "seizure" was like "seizing" the USPS, not UPS or FedEx.

This is one reason why they're dangerous, people get confused as to what the GSE's are and thus to don't accurately assess the risk the pose. No, they were nothing like the USPS. At the USPS the government signs the pay checks, the government sets the salaries, there are no shareholders and so on. Freddie and Fannie operated on a daily basis completely as private for profit entities complete with publicly traded stock shares. The government's role was to initially sponsor their creation. Not wanting to take responsibility for the huge mortgage flows as part of the yearly federal budget process, the government made them a private organization. There has always been an unwritten understanding, that Fannie/Fred vehemently denied in public, that they were creatures of the government and essentially had the backing of the treasury. (We now know via the seizure that this was always true). This allowed them to borrow money as if they actually were the US treasury, in other words to borrow money at the same interest rate as the treasury - essentially a license to print money.

 

[Al68]

This is one reason why they're dangerous, people get confused as to what the GSE's are and thus to don't accurately assess the risk the pose. No, they were nothing like the USPS. At the USPS the government signs the pay checks, the government sets the salaries, there are no shareholders and so on. Freddie and Fannie operated on a daily basis completely as private for profit entities complete with publicly traded stock shares. The government's role was to initially sponsor their creation. Not wanting to take responsibility for the huge mortgage flows as part of the yearly federal budget process, the government made them a private organization. There has always been an unwritten understanding, that Fannie/Fred vehemently denied in public, that they were creatures of the government and essentially had the backing of the treasury. (We now know via the seizure that this was always true). This allowed them to borrow money as if they actually were the US treasury, in other words to borrow money at the same interest rate as the treasury - essentially a license to print money.

You're exactly right. Sure the Federal gov't "loaned" out the reins of F&F, but their charter was never completely private in the "libertarian" sense, meaning that gov't created them, cut the cord financially, but contingent on F&F continuing its obligation to serve the public interest, with gov't oversight. Government "seizing" them is not in any way like seizing a private company, started and operated by private individuals, that made no voluntary agreement to fulfill any public purpose or goal.

I only made the comparison to the post office because, although they are quite different, the analogy is in the fact that they are both government created entities, created for public purposes, obligated to serve the public interest.

 

[Ivan Seeking]

http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/08/03/financial/f082355D29.DTL

At that point we are likely doubling our money wrt to imported crude and the GDP.

I don't know what the numbers are wrt to gross sales in dollars, but there is also the issue of taxes and fees collected by the Federal government, and the States, including title transfers and the like, based on probably 5-6 billion in sales.

 

[Ivan Seeking]

My only problem with this program is that, they destroy the engine and and make the sell of the transmission illegal. Those parts would be useful to repair other vehicles.

That would be counterproductive. The idea is to get the gas hogs off the road. This program works on a number of levels: It stimulates the economy generally; it stimulates auto sales in particular; it reduces the demand for foreign oil; it reduces CO2 emissions.

Other hidden benefits include a reduction in the cost of health care. There is data relating pollution levels in cities, to health care costs. In particular is the cost of respiratory problems that send people to the ER.

Imo, with rare exception, I think this notion that people will drive more if they buy a respectable car, is silly. That will probably be true in a few cases, but most people have routines and a set of needs that dictate how often they drive, and how far.

 

[TheStatutoryApe]

Imo, with rare exception, I think this notion that people will drive more if they buy a respectable car, is silly. That will probably be true in a few cases, but most people have routines and a set of needs that dictate how often they drive, and how far.

I own a crappy old car. I intentionally drive as little as possible because I am afraid of it breaking down on me again. I think a lot of people with older cars do this. They probably also drive less to save money on gas. If they are not as worried about their cars breaking down and not as worried about the expense of keeping gas in the car they are most likely going to drive more. How much more is another question all together though.

 

[mgb_phys]

If they are not as worried about their cars breaking down and not as worried about the expense of keeping gas in the car they are most likely going to drive more.

Thats one of the problems with the economics of owning a car, once you have sunk the large cost purchase/lease and the annual fixed costs like insurance there isn't much extra marginal cost to driving it (at least with US fuel prices).
So if you never use a car (and don't own one) it could be cheaper to take transit but once you buy a car then it becomes cheaper to use it for all trips.

I just got sent the details for the Canadian equivalent, naturally since the Canadian government is involved it's much more complicated - but does have some good ides. Here are the options for taking your payback http://www.scrapit.ca/incentivechoices.htm

 

[Jimmy Snyder]

Google "broken window fallacy". Are they going to give incentives for people to destroy their houses next?

 

[mgb_phys]

Google "broken window fallacy". Are they going to give incentives for people to destroy their houses next?

Depends what the aim is, to improve air quality in cities removing clunkers works quite well - the majority of pollution is produced by a smaller number of older vehicles. A scrap refund is about the only way to incenitivize (is that a word?) these vehicles off the road - or you could introduce expensive frequent emmissions checks for cars more than n years old.

If you want to reduce overall fuel usage then you can put up gas prices, change emissions regs and tax/vehicle classifications to make smaller cars cheaper or always a favourite - build more roads.

 

[mheslep]

Imo, with rare exception, I think this notion that people will drive more if they buy a respectable car, is silly. That will probably be true in a few cases, but most people have routines and a set of needs that dictate how often they drive, and how far.

It's not the respectability, its the lower cost per mile driven of the newer fuel efficient vehicle that increases total miles driven. That doesn't nullify the effect of the program, but it is far from silly, rather it is well http://en.wikipedia.org/wiki/Jevons_paradox" in economics.

Another economic near certainty about the clunkers program: it will substantially increase the cost of low end used vehicles - the kind of car that gets the less fortunate around.

 

[Ivan Seeking]

It's not the respectability, its the lower cost per mile driven of the newer fuel efficient vehicle that increases total miles driven.

When I said respectable, I meant that wrt to social consciousness and being part of the solution to the energy problem, the trade deficit, and our reliance on foreign oil, instead of being part of the problem.

That doesn't nullify the effect of the program, but it is far from silly, rather it is well http://en.wikipedia.org/wiki/Jevons_paradox" in economics.

That is not evidence that it applies in the case of cars. I say it is silly based on a practical perspective. People don't normally drive just to be driving. The drive when they have a need to do so.

Another economic near certainty about the clunkers program: it will substantially increase the cost of low end used vehicles - the kind of car that gets the less fortunate around.

Only temporarily. In the long term, all of the more fuel efficient cars will help to drive down the used car price for fuel efficient cars, which are typically more expensive than gas hogs, which means that fuel efficient cars will be more available to the disadvantaged. This in turn means that they will pay less of their incomes out to OPEC.

Also, most disadvantaged people don't buy SUVs anyway. They can't afford the gas.

 

[j93]

Only temporarily. In the long term, all of the more fuel efficient cars will help to drive down the used car price for fuel efficient cars, which are typically more expensive than gas hogs, which means that fuel efficient cars will be more available to the disadvantaged. This in turn means that they will pay less of their incomes out to OPEC.

Also, most disadvantaged people don't buy SUVs anyway. They can't afford the gas.

They buy whatever they can get for cheap just to get around wether it be an 80's miata or that ugly SUV rodeo car. Some people have to buy gas guzzlers for their job ie a truck. The gas isn't much of an issue unless thinking in the long run which most people do not when the only thought is how they are going to get to work quickly.

That is not evidence that it applies in the case of cars. I say it is silly based on a practical perspective. People don't normally drive just to be driving. The drive when they have a need to do so.

This is not true. Think about the amount of cars in Los Angeles.

 

[Ivan Seeking]

They buy whatever they can get for cheap just to get around wether it be an 80's miata or that ugly SUV rodeo car. Some people have to buy gas guzzlers for their job ie a truck. The gas isn't much of an issue unless thinking in the long run which most people do not when the only thought is how they are going to get to work quickly.

In that event, we need to consider not a five-year advantage for the GDP, as I did. Instead we need to consider something more like a fifteen-year advantage, which would mean that we get more something more like a 4:1 or 6:1 return on our billion dollar investment, in terms of the GDP.

Thanks, you make a good point: We have to consider not only the immediate benefit of getting a clunker off the road, we also have to consider that the incentive to buy fuel-efficient cars will put some of those cars on the road for many years in place of others that would have been gas hogs. That is to say that some people will buy more efficient vehicles that otherwise wouldn't have done so.

This is not true. Think about the amount of cars in Los Angeles.

What does that have to do with anything? Usage is dependent on need. That doesn't change no matter what vehicle one owns.

 

[Ivan Seeking]

Google "broken window fallacy". Are they going to give incentives for people to destroy their houses next?

The broken window fallacy does not apply in this context. The reason is that we are effectively creating wealth [not depleting wealth] by reducing the trade deficit.

If the shopkeeper buys a high efficiency window to replace the old leaky one, and as a result, over the coming years, the shopkeeper reduces his heating bill by more than the value of the window, and assuming that his heat energy supplier is a traveler from a distant land, everyone wins but the traveler - OPEC.

The real number to consider is the GDP. That is the bottom line.

 

[DavidSnider]

This all seems very hand-wavey to me. Does anybody have a link with some sort of ballpark estimates?

The main complaints I seem to be hearing are:
1) Depreciation of the new car
2) The cost to dispose of the old car
3) Cost to manufacture the new one
4) The cost of borrowing the money for the incentive
5) The cost of borrowing the money to manufacture the car

 

[mheslep]

When I said respectable, I meant that wrt to social consciousness and being part of the solution to the energy problem, the trade deficit, and our reliance on foreign oil, instead of being part of the problem.

Yes, understood.

That is not evidence that it applies in the case of cars.

The theory, well documented over all kinds of data, applies to the replacement of _any_ energy using device with a more efficient one. There are complications and other counter acting economic effects.

I say it is silly based on a practical perspective. People don't normally drive just to be driving. The drive when they have a need to do so.

People drive, fly, take the train, eat a hamburger all when they need/want to and always with an eye on the cost of each. The effects of cost are not always immediate because of elasticity (slack in the market), but eventually always come into play. In the case of the car, a practical example would be that third yearly trip to grandma's house that was previously forgone because of the gas cost in the clunker, but now in the new 25 mpg ride is affordable again.

Though I still oppose it, all and all this is one of the more effective stimulus ideas, because it is timely and targeted, dramatically unlike the rest of the stimulus. But it is not without costs, and I don't mean just to the the US Treasury. It benefits the few, at a cost to others, particularly those with very low incomes as they can't play.

Only temporarily. In the long term, all of the more fuel efficient cars will help to drive down the used car price for fuel efficient cars, which are typically more expensive than gas hogs, which means that fuel efficient cars will be more available to the disadvantaged. This in turn means that they will pay less of their incomes out to OPEC.

Getting off (imported) oil is a great goal though I don't care for these means. In the long term the gas hogs clunkers disappear by themselves. And if the argument is the application of market forces to the car companies will help the disadvantaged by increasing the supply of fuel eff. cars (and lowering the cost), I can think of a counter argument along those lines. The disadvantaged need very, very low cost cars. Detroit traditionally avoids this market, they chase the higher cost and higher margin cars (esp. SUVs) so they and the unions can maintain the vertically integrated business models. That shamefully has left to India and China the role of making the $2500 car (e.g the Tata Nano). This buy back plan is yet another enabler along the old lines - the subsidy encourages Detroit to not serve the low cost market. Why do so when the govt is paying people to buy your more expensive cars?

Also, most disadvantaged people don't buy SUVs anyway. They can't afford the gas.

Eh? SUVs? They scrape to buy (as I did once upon a time) a $1500 car. Now all those cars cost ~$4000, or whatever the buy back price point.

 

[Jimmy Snyder]

Depends what the aim is, to improve air quality in cities removing clunkers works quite well

I can think of much better ways to do that.

you could introduce expensive frequent emmissions checks for cars more than n years old.

If you want to reduce overall fuel usage then you can put up gas prices, change emissions regs and tax/vehicle classifications to make smaller cars cheaper or always a favourite - build more roads.

And so, apparently, can you. Surely no one thinks this is a way to reduce pollution, you can't get a credit for dropping the clunker unless you buy a new slightly less clunker.

 

[mgb_phys]

I can think of much better ways to do that.

Yes, if we didn't have such faith in politicians we might be suspicious of the motives of handing out $4000 to people who could afford to buy new cars.

Surely no one thinks this is a way to reduce pollution, you can't get a credit for dropping the clunker unless you buy a new slightly less clunker.

Thats why the Canadian system might be better, you get more money for a trade in against transit passes, less against a bike or ride-share scheme and least in cash. There is no requirement to get a replacement car.

 

[Jimmy Snyder]

The broken window fallacy does not apply in this context.

This context is a textbook example of the broken window fallacy. You turn in a working car which is demolished and you have to buy a newly manufactured car to replace it.

The reason is that we are effectively creating wealth [not depleting wealth] by reducing the trade deficit.

Reducing the trade deficit does not create wealth, it just shifts it around. There is only one way to reduce the trade deficit: Produce more and/or consume less. Politicians don't like this answer, they prefer to blame foreigners. So what, it's still true. This program will not save a drop of gasoline. The energy cost of building a new car to replace a servicable old car will eat all of the savings and more.

 

[mheslep]

...There is only one way to reduce the trade deficit: Produce more and/or consume less. Politicians don't like this answer, they prefer to blame foreigners. So what, it's still true.

That is so fundamentally true it should be inscribed on one those shiny white buildings the Pols enter daily.

This program will not save a drop of gasoline. The energy cost of building a new car to replace a serviceable old car will eat all of the savings and more.

Er probably true in terms of a not saving a drop of energy (coal et al) after counting the new car production. Likely it will save on some gasoline, though not much as much as hoped.

 

[drankin]

Reducing the trade deficit does not create wealth, it just shifts it around. There is only one way to reduce the trade deficit: Produce more and/or consume less. Politicians don't like this answer, they prefer to blame foreigners. So what, it's still true. This program will not save a drop of gasoline. The energy cost of building a new car to replace a servicable old car will eat all of the savings and more.

I've been waiting for someone to point this out.

 

[Al68]

Google "broken window fallacy". Are they going to give incentives for people to destroy their houses next?

If the shopkeeper buys a high efficiency window to replace the old leaky one, and as a result, over the coming years, the shopkeeper reduces his heating bill by more than the value of the window, and assuming that his heat energy supplier is a traveler from a distant land, everyone wins but the traveler - OPEC.

So if put sugar in someone's gas tank, ruining their car, and they go buy a new one, I can claim that putting sugar in gas tanks of older cars helps the economy.

Is that more analogous to the broken glass theory of economics, or the CARS program?