Cash for Clunkers goes...thud

[GG]

Given only a billion dollars to work with, I defy anyone to invest it in energy independence more effectively than that.

 

Raising the gasoline tax by $1.

[Pine Barrens Mafia]

Which is an idiotic complaint. At $4k a pop, that's a quarter-million new cars purchased. So because three hundred thousand people want to take advantage of the program, they cancel the whole thing?

 

By the way...at a back-of-the-envelope estimate, that billion dollars would reduce annual gasoline consumption by about three percent (very roughly - 200k cars replaced, at a gain of 10mpg per car, over an average of 7k miles driven per year. Gives a reduction in gas consumption on the order of a hundred million gallons annual, which is roughly ten days full consumption.)

 

Given only a billion dollars to work with, I defy anyone to invest it in energy independence more effectively than that.

 

I'm with Tom on this one. Providing market incentive through tax breaks or credits is a good idea. I wonder how much good the $8000 tax credits for home buying has worked?

[PastaJoe]

Congressional sources said early Thursday evening that the program would be put on hold. But Obama administration officials said later that Clunkers had not been suspended and that they were studying the situation.

 

"Auto dealers and consumers should have confidence that all valid ... transactions that have taken place to date will be honored," a White House official said in a statement.

 

An official at the Department of Transportation, which manages Cash for Clunkers, said the administration would try to work with Congress to find more funds to keep it going. One of the program's main champions in Congress, Sen. Debbie Stabenow, D-Mich., called on Congress to appropriate more money. Stabenow said the effort has provided an important boost to the economy and resulted in 200,000 car sales. "I am delighted to hear dealers say that all of their salespeople are busy and they are selling more cars in a day than they had been selling in a month," Stabenow said. Meanwhile, the Transportation Department was sorting out how much of the plan's funds have already been committed.

 

Cash for Clunkers, which Congress passed in June, is set to end on Nov. 1 or whenever its $1 billion budget has been depleted.

 

An early version of the Clunkers proposal in Congress called for appropriating $4 billion.

 

http://money.cnn.com/2009/07/30/autos/cash...ended/index.htm

[IDBillzFan]

Congressional sources said early Thursday evening that the program would be put on hold. But Obama administration officials said later that Clunkers had not been suspended and that they were studying the situation.

So Congress is telling everyone one thing, and the administratin is telling everyone something completely different.

 

Damn, this health care thing doesn't stand a chance of surviving.

 

Oh, wait. Wrong program. Same responses, but wrong program.

 

Carry on.

[Magox]

Raising the gasoline tax by $1.

GG, I do believe that it would create less demand for driving. More so in a recreational sense, people would still need to drive to work, sure there would be a little bit more carpooling going on, but nothing significant. Where you would see a significant drop off is in vacation driving, less people would drive on longer distanced vacations, hotels and tourist attractions would do less business, creating another problem, leading to this unintended consequence. so yes, it probably would be more eco friendly, but considering the possible consequences, I don't think it is as good of an idea as the one that is being implemented now. Specially when you consider the positive effects of the CASH FOR CLUNKERS plan has for wiping out excess inventory, stimulating sales, financing and etc.

[DC Tom]

Congressional sources said early Thursday evening that the program would be put on hold. But Obama administration officials said later that Clunkers had not been suspended and that they were studying the situation.

 

"Auto dealers and consumers should have confidence that all valid ... transactions that have taken place to date will be honored," a White House official said in a statement.

 

An official at the Department of Transportation, which manages Cash for Clunkers, said the administration would try to work with Congress to find more funds to keep it going. One of the program's main champions in Congress, Sen. Debbie Stabenow, D-Mich., called on Congress to appropriate more money. Stabenow said the effort has provided an important boost to the economy and resulted in 200,000 car sales. "I am delighted to hear dealers say that all of their salespeople are busy and they are selling more cars in a day than they had been selling in a month," Stabenow said. Meanwhile, the Transportation Department was sorting out how much of the plan's funds have already been committed.

 

Cash for Clunkers, which Congress passed in June, is set to end on Nov. 1 or whenever its $1 billion budget has been depleted.

 

An early version of the Clunkers proposal in Congress called for appropriating $4 billion.

 

http://money.cnn.com/2009/07/30/autos/cash...ended/index.htm

 

Retarded. They used up the billion, the program's over. No need to extend it...just fund another billion next year.

 

Hell, make it an annual program: if you've owned your car for at least three years, you get a $4000 credit if you trade it in for a newer model with 10mpg higher gas mileage. Program ends every year when the billion's gone. Missed it? Wait 'til next year.

 

That's actually a long-term economic stimulus, that promotes energy independence, with results that would be cheap at the overall cost. So naturally, there's no way that would happen.

[Magox]

Retarded. They used up the billion, the program's over. No need to extend it...just fund another billion next year.

 

Hell, make it an annual program: if you've owned your car for at least three years, you get a $4000 credit if you trade it in for a newer model with 10mpg higher gas mileage. Program ends every year when the billion's gone. Missed it? Wait 'til next year.

 

That's actually a long-term economic stimulus, that promotes energy independence, with results that would be cheap at the overall cost. So naturally, there's no way that would happen.

As easy as it is to be on the opposing side of Pasta Joe, I happen to believe they should extend the program. One of the main issues is the excess inventory of vehicles that many of these dealerships have, and their viability. This would help address both issues. Why wait until next year? If there is demand for it now, extend it!

 

However, I do agree that it should be an annual program, and that it would be an effective long-term economic stimulus.

[Ramius]

Retarded. They used up the billion, the program's over. No need to extend it...just fund another billion next year.

 

Hell, make it an annual program: if you've owned your car for at least three years, you get a $4000 credit if you trade it in for a newer model with 10mpg higher gas mileage. Program ends every year when the billion's gone. Missed it? Wait 'til next year.

 

That's actually a long-term economic stimulus, that promotes energy independence, with results that would be cheap at the overall cost. So naturally, there's no way that would happen.

 

That makes too much sense for the gubmint to consider it.

[blzrul]

Idiot. The program was intended to cost $1b and run thru November, or until the money ran out. Automakers have been "pre-selling" and collecting applications since July 1 for a program that didn't fully kick in until 7/27.

 

More than 250,000 cars have been sold. Gee, that's terrible for the economy. Terrible for employment in the auto industry - even though many may be foreign cars, there are sales and service jobs and others riding on them.

 

Yep, what a dud. The program succeeded beyond expectations. That really sucks.

 

Dumbass.

[PastaJoe]

The House on Friday passed a bill to allocate another $2 billion to the Cash for Clunkers program. The bill passed 316-109. The Senate is not expected to vote before Monday.

[DC Tom]

The House on Friday passed a bill to allocate another $2 billion to the Cash for Clunkers program. The bill passed 316-109. The Senate is not expected to vote before Monday.

 

Vote whores.

[Bishop Hedd]

Figures

 

And these guys think they can fix health care?

Actually the opposite is true. Where did you get this info from Rush or Bill O?

[finknottle]

Talk about a low bar! By dint of running out of money, the cash for clunkers is a great success... in the same way that welfare or stimulus handouts are successfull when everybody cashes their checks. I bet if we double the subsidy, we'll run out of money even faster, giving the administration a great success to trumpet!

 

Which is an idiotic complaint. At $4k a pop, that's a quarter-million new cars purchased. So because three hundred thousand people want to take advantage of the program, they cancel the whole thing?

 

By the way...at a back-of-the-envelope estimate, that billion dollars would reduce annual gasoline consumption by about three percent (very roughly - 200k cars replaced, at a gain of 10mpg per car, over an average of 7k miles driven per year. Gives a reduction in gas consumption on the order of a hundred million gallons annual, which is roughly ten days full consumption.)

 

Given only a billion dollars to work with, I defy anyone to invest it in energy independence more effectively than that.

 

I don't follow your math, but since nobody looked at it I'll take a stab. The program allocated 1 billion for trading in cars with 18 mpg or less. You get $4,500 if the new car is 10 mpg or better. If it is 4 mpg or more better, you get $3,500.

 

Here is the rosiest scenario: everybody trades in for cars which are significantly more fuel efficient (and thus getting the full $4,500). Then 222k cars are traded in. Assume the old ones are driven 7k miles a year and get 15 mpg. Assume the new ones get 30 mpg and are still driven 7k miles a year. Then each driver saves 7k/30 = 233.3 gallons a year. This saves the nation 233.3 x 222k = 51.8 million gallons a year.

 

So in the scenario most favorable to savings you are still off by a factor of two - no great sin for the back of an envelope. But what is going on macro-economically? If gas is $4 a gallon then our one billion dollar investment pays itself off after 1000/51.8*4 = 4.83 years. But if gas is $2 a gallon (a more realistic number over the next five years), it takes 9.66 years to pay for itself. These numbers are not bad, if that's all there was to the investment. But it isn't.

 

Cars are not free to buyers after the rebates are factored in. A new one averages $28,400. Let's assume that these clunkers have a generous trade in value of $3,400 (just to make the math easier). Then average cost of the upgrade becomes $25k. So we are collectively investing 222k x 25k = $5.6 billion dollars, to save 51.8 million gallons of gas a year.

 

For the individual, this deal makes sense: they are investing $20.5k and saving $466-932 a year, an annual return between 2.3-4.5%. Plus, they get a new car out of the deal. With CD rates below 2%, it's a great investment, and we shouldn't be surprised that the eligible are lining up at the trough. But for the nation, this isn't so impressive. Put aside the ethical issue of collectively investing in something whose payoff goes exclusively to the eligible - those fortunate enough to have a clunker. We are investing $5.6 billion dollars to save $116-232 million dollars a year. Our collective investment is earning a return of 2.1-4.2%. Not bad, but not great for a nation who is themselves borrowing to pay for it.

 

Let's look at a much more pessimistic scenario: cars getting 16 mpg, traded in for ones getting 20 mpg, and earning a rebate of $3,500. Then 286k cars participate. Instead of using 7k/16 = 437.5 gallons a year, they use 350. This saves the nation 87.5 x 286k = 25 million gallons a year. Looking at is only as a $1 billion dollar investment, the investment pays for itself in 10 years if gas averages $4 a gallon, and 20 years if it is $2.

 

Let's assume that these more modest 20 mpg cars average $23,900 instead of $28,400, and the trade value is still $3,400. Then an individual is investing 23.9k - 3.4k - 3.5k = $17,000. He uses 87.5 gallons a year less, and saving between $175 and $350. The annual return is 1-2%, on par with a CD - still a good investment. But the nation is spending 286k x (23.9k - 3.4k) = $5.9 billion dollars to save 25 million gallons a year, or $50-100 million dollars. This is an abysmal return of 0.8-1.7%. This return is less than half the interest rate we would have to pay on treasuries issued to cover the subsidies.

 

So - in what sense is this program an economic success? Regardless of whether we are looking at the optimist or pessimist scenario, a ten year treasury issued to cover this program pays about 3.5% in interest, and a twenty year note pays 4.3%. So we are paying more in interest than we are saving in consumption. In what sense is it a good investment for the country?

[ExiledInIllinois]

Im thinking this C4C program might be the REAL stimulus. Car companies are pushing this program like mad and if youre in the market for a car....wow...you can get some really good deals...and you might start seeing things move again.

 

Friend of mine got a brand new Impala, sticker 30K for 24K. Good deal.

 

 

Things always moved... If you have the cash... Back in 2006 I got my Chrysler for 33, sticker was 46K... Man did they squeal, but they made the deal.

[ExiledInIllinois]

To me, this is evidence that the program is working extremely well. God forbid they have to ask for more money on a program that IS working. Finance companies are doing more business, sales people in auto dealers are making more commissions, excess inventory is getting wiped out at the dealerships, Auto dealers are doing more business, non eco friendly vehicles are getting taken off the highway and replaced with more fuel efficient vehicles. This is a win win deal, that is working!

 

Sure, they didn't anticipate the amount of vehicles that were going to be sold, but it is a trial and error process.

 

 

Yet... Beware... There will be another lull... What are people gonna buy new cars ever 3 years? Especially with the way cars last now.

[ExiledInIllinois]

Retarded. They used up the billion, the program's over. No need to extend it...just fund another billion next year.

 

Hell, make it an annual program: if you've owned your car for at least three years, you get a $4000 credit if you trade it in for a newer model with 10mpg higher gas mileage. Program ends every year when the billion's gone. Missed it? Wait 'til next year.

 

That's actually a long-term economic stimulus, that promotes energy independence, with results that would be cheap at the overall cost. So naturally, there's no way that would happen.

 

 

BINGO! With my post above... I couldn't figure out where they may be going. You kinda answered it.

[ThereIsNoDog]

Talk about a low bar! By dint of running out of money, the cash for clunkers is a great success... in the same way that welfare or stimulus handouts are successfull when everybody cashes their checks. I bet if we double the subsidy, we'll run out of money even faster, giving the administration a great success to trumpet!

 

 

 

I don't follow your math, but since nobody looked at it I'll take a stab. The program allocated 1 billion for trading in cars with 18 mpg or less. You get $4,500 if the new car is 10 mpg or better. If it is 4 mpg or more better, you get $3,500.

 

Here is the rosiest scenario: everybody trades in for cars which are significantly more fuel efficient (and thus getting the full $4,500). Then 222k cars are traded in. Assume the old ones are driven 7k miles a year and get 15 mpg. Assume the new ones get 30 mpg and are still driven 7k miles a year. Then each driver saves 7k/30 = 233.3 gallons a year. This saves the nation 233.3 x 222k = 51.8 million gallons a year.

 

So in the scenario most favorable to savings you are still off by a factor of two - no great sin for the back of an envelope. But what is going on macro-economically? If gas is $4 a gallon then our one billion dollar investment pays itself off after 1000/51.8*4 = 4.83 years. But if gas is $2 a gallon (a more realistic number over the next five years), it takes 9.66 years to pay for itself. These numbers are not bad, if that's all there was to the investment. But it isn't.

 

Cars are not free to buyers after the rebates are factored in. A new one averages $28,400. Let's assume that these clunkers have a generous trade in value of $3,400 (just to make the math easier). Then average cost of the upgrade becomes $25k. So we are collectively investing 222k x 25k = $5.6 billion dollars, to save 51.8 million gallons of gas a year.

 

For the individual, this deal makes sense: they are investing $20.5k and saving $466-932 a year, an annual return between 2.3-4.5%. Plus, they get a new car out of the deal. With CD rates below 2%, it's a great investment, and we shouldn't be surprised that the eligible are lining up at the trough. But for the nation, this isn't so impressive. Put aside the ethical issue of collectively investing in something whose payoff goes exclusively to the eligible - those fortunate enough to have a clunker. We are investing $5.6 billion dollars to save $116-232 million dollars a year. Our collective investment is earning a return of 2.1-4.2%. Not bad, but not great for a nation who is themselves borrowing to pay for it.

 

Let's look at a much more pessimistic scenario: cars getting 16 mpg, traded in for ones getting 20 mpg, and earning a rebate of $3,500. Then 286k cars participate. Instead of using 7k/16 = 437.5 gallons a year, they use 350. This saves the nation 87.5 x 286k = 25 million gallons a year. Looking at is only as a $1 billion dollar investment, the investment pays for itself in 10 years if gas averages $4 a gallon, and 20 years if it is $2.

 

Let's assume that these more modest 20 mpg cars average $23,900 instead of $28,400, and the trade value is still $3,400. Then an individual is investing 23.9k - 3.4k - 3.5k = $17,000. He uses 87.5 gallons a year less, and saving between $175 and $350. The annual return is 1-2%, on par with a CD - still a good investment. But the nation is spending 286k x (23.9k - 3.4k) = $5.9 billion dollars to save 25 million gallons a year, or $50-100 million dollars. This is an abysmal return of 0.8-1.7%. This return is less than half the interest rate we would have to pay on treasuries issued to cover the subsidies.

 

So - in what sense is this program an economic success? Regardless of whether we are looking at the optimist or pessimist scenario, a ten year treasury issued to cover this program pays about 3.5% in interest, and a twenty year note pays 4.3%. So we are paying more in interest than we are saving in consumption. In what sense is it a good investment for the country?

Much more realistic than that back of the envelope stuff. Also one needs to take into account the cost to run the program. The $1B pricetag was strictly for the rebates.

 

And again, relating this to my original point, the health care overhaul, it's a lot easier to come up with an addition $2B, than it is to come up with an additional $2T.

[DC Tom]

Talk about a low bar! By dint of running out of money, the cash for clunkers is a great success... in the same way that welfare or stimulus handouts are successfull when everybody cashes their checks. I bet if we double the subsidy, we'll run out of money even faster, giving the administration a great success to trumpet!

 

 

 

I don't follow your math, but since nobody looked at it I'll take a stab. The program allocated 1 billion for trading in cars with 18 mpg or less. You get $4,500 if the new car is 10 mpg or better. If it is 4 mpg or more better, you get $3,500.

 

Here is the rosiest scenario: everybody trades in for cars which are significantly more fuel efficient (and thus getting the full $4,500). Then 222k cars are traded in. Assume the old ones are driven 7k miles a year and get 15 mpg. Assume the new ones get 30 mpg and are still driven 7k miles a year. Then each driver saves 7k/30 = 233.3 gallons a year. This saves the nation 233.3 x 222k = 51.8 million gallons a year.

 

So in the scenario most favorable to savings you are still off by a factor of two - no great sin for the back of an envelope. But what is going on macro-economically? If gas is $4 a gallon then our one billion dollar investment pays itself off after 1000/51.8*4 = 4.83 years. But if gas is $2 a gallon (a more realistic number over the next five years), it takes 9.66 years to pay for itself. These numbers are not bad, if that's all there was to the investment. But it isn't.

 

Cars are not free to buyers after the rebates are factored in. A new one averages $28,400. Let's assume that these clunkers have a generous trade in value of $3,400 (just to make the math easier). Then average cost of the upgrade becomes $25k. So we are collectively investing 222k x 25k = $5.6 billion dollars, to save 51.8 million gallons of gas a year.

 

For the individual, this deal makes sense: they are investing $20.5k and saving $466-932 a year, an annual return between 2.3-4.5%. Plus, they get a new car out of the deal. With CD rates below 2%, it's a great investment, and we shouldn't be surprised that the eligible are lining up at the trough. But for the nation, this isn't so impressive. Put aside the ethical issue of collectively investing in something whose payoff goes exclusively to the eligible - those fortunate enough to have a clunker. We are investing $5.6 billion dollars to save $116-232 million dollars a year. Our collective investment is earning a return of 2.1-4.2%. Not bad, but not great for a nation who is themselves borrowing to pay for it.

 

Let's look at a much more pessimistic scenario: cars getting 16 mpg, traded in for ones getting 20 mpg, and earning a rebate of $3,500. Then 286k cars participate. Instead of using 7k/16 = 437.5 gallons a year, they use 350. This saves the nation 87.5 x 286k = 25 million gallons a year. Looking at is only as a $1 billion dollar investment, the investment pays for itself in 10 years if gas averages $4 a gallon, and 20 years if it is $2.

 

Let's assume that these more modest 20 mpg cars average $23,900 instead of $28,400, and the trade value is still $3,400. Then an individual is investing 23.9k - 3.4k - 3.5k = $17,000. He uses 87.5 gallons a year less, and saving between $175 and $350. The annual return is 1-2%, on par with a CD - still a good investment. But the nation is spending 286k x (23.9k - 3.4k) = $5.9 billion dollars to save 25 million gallons a year, or $50-100 million dollars. This is an abysmal return of 0.8-1.7%. This return is less than half the interest rate we would have to pay on treasuries issued to cover the subsidies.

 

So - in what sense is this program an economic success? Regardless of whether we are looking at the optimist or pessimist scenario, a ten year treasury issued to cover this program pays about 3.5% in interest, and a twenty year note pays 4.3%. So we are paying more in interest than we are saving in consumption. In what sense is it a good investment for the country?

 

I specifically said "invest a billion dollars in energy independence".

 

That is...I was specifically looking at a narrowly focused point of view, not at the macroeconomic impact.

[Keukasmallies]

At one point this spring an "idea" was making the rounds of blogs, forwards, etc that proposed the government should give every person over fifty-five a million dollars...with three conditions: First, each person would have to buy a car (thus solving the crisis in the auto industry), pay off their mortgage (thus addressing the housing and some banking issues), and, finally, pay off their credit card debt (thus...you get the picture).

 

Well, with the apparent success of the cash-for-clunkers money, that so-called idea that made the rounds earlier doesn't sound so silly any more.... It sure would have been cheaper than the house of cards that Congress and the President constructed.

[ExiledInIllinois]

At one point this spring an "idea" was making the rounds of blogs, forwards, etc that proposed the government should give every person over fifty-five a million dollars...with three conditions: First, each person would have to buy a car (thus solving the crisis in the auto industry), pay off their mortgage (thus addressing the housing and some banking issues), and, finally, pay off their credit card debt (thus...you get the picture).

 

Well, with the apparent success of the cash-for-clunkers money, that so-called idea that made the rounds earlier doesn't sound so silly any more.... It sure would have been cheaper than the house of cards that Congress and the President constructed.

 

What would it have been called?:

 

"Boomer Bailout"

 

WTF is up with that generation.