The Final Numbers on ‘Clunkers’ | Hacker News Reader

The Final Numbers on ‘Clunkers’

wheels.blogs.nytimes.com

21 pointssahaj39 comments

I'm still against the premise of this program. This was a redistribution of wealth to failing industry and to people who owned poorer cars. A couple B's in the larger scheme of things may not seem like a lot, but the underlying ideology is quite dangerous, and I'm hearing rumours that this may be expanding to appliances that are not energy efficient.

There's a much simpler way to accomplish the same effect: tax energy. You will have an economic incentive to get more efficient appliances, cars, etc while this costs the federal government very little. To combat the regressiveness of this proposal, the feds could offset this with reducing payroll taxes.

The obvious downside of this is that it doesn't have the "sexiness" of the rebate (it's a behavioral finance thing) and we wouldn't see the returns immediately.

I am in agreement that this program was misplaced and complete abuse of taxpayer's money. I take public transportation to work but my taxes have been used so that someone can buy a brand new car. And why do we think that 3 billion dollars is not a lot just because Government is spending it? E.g. if Exxon waste 3 billion dollars, do you think shareholders should not complain becaue Exxon earns billions of dollars in profit? Waste is a waste, no matter how small.

Also, I disagree with your alternate plan. Why do you think that taxing energy will helpful? Government will spend (and waste) all the tax money you give to them and then some. Why not propose a minimal government and minimal taxes and let the free market workout how resources should be allocated?

To answer you last question, because we are starting with the premise that the free market does not properly price certain externalities (for example, the costs from environmental damage associated with climate change). You may not agree with this premise, in which case a debate about how to effectively encourage energy efficiency is a strange place to find yourself.

I agree with this response. But your prior idea of an energy tax, I disagree. Instead of a tax, you could simply make it illegal to sell vehicles under a certain efficiency rating. Congress has taken this approach, sort of. The only thing wrong with it is the bills get watered down with loopholes and the efficiency numbers are too little too late.

What vehicles has Congress made illegal to sell based on mileage ratings? (I'm pretty sure the answer is "None, but some get slapped with a gas guzzler sur-tax.")

The laws I'm talking about don't go into effect until 10-15 years from now. And they've been watered down. And I expect they will be watered down more by the time the due dates arrive. But the original purpose was to force better fuel efficiency, not to tax inefficiency.

Instead of a tax, you could simply make it illegal to sell vehicles under a certain efficiency rating.

That doesn't work as well. It's much better for someone who lives 50 miles from work to move 45 miles closer than to trade their Hummer for a Prius.

How do we do that? How do you transform Houston or a Atlanta into Portland?

I am not sure how you came to the premise that free market does not properly price certain externalities.

And even if I were to agree with that premise, we should tax 'environmental damage', not energy usage. This way, if I use clean energy (e.g. solar power) I don't have to pay anything but if I use unclean energy, I will have to pay the price.

Ideally, the alternate plan would be revenue neutral, with the payroll tax cuts offsetting the energy tax, but it would shift our priorities when it comes to energy consumption (see Pigovian tax systems). A natural extension would be a full on sales tax (aka FairTax) but I doubt the feasibility of such a program.

Another policy idea to consider was instead of MPG mandates, you pick a number for a certain class (30MPG on sedans, etc) and work on a rebate/tax system on the over/under. I feel this would be executed better on the state not federal level.

I drive to work but my [sales] taxes have been used so that you (or the Boston equivalent of you) can have public transport available. So what?

I agree that it's an abuse of taxpayer's money, but not just because I don't personally benefit from it. In fact, I have a clunker-eligible clunker-in-reality Jeep, but it is so much more financially advantageous to me to keep driving it than it would be to pay new car prices for a new car. I wanted to take advantage of the government handout, could easily have afforded any new car I wanted (even ones well over the MSRP cap for CARS program), but my judgment was that chasing the $4500 rebate would cost me 3-5x that and it wasn't worth it.

THAT IMO is why it's a bad program: it encourages consumers who are marginally making it to burn up $15K in economic value over a few years in exchange for a $4500 government handout now. On one hand, that's exactly what makes the program stimulative. On the other, it's borderline preying on not-quite-poor people and their (as a class) inability to make rational economic choices in their best long-term interest. When I look around at my friends who took advantage of the program, the ones who could least afford to do so, did so, and the ones who could most afford to, chose not to...

<blockquote>"There's a much simpler way to accomplish the same effect: tax energy."</blockquote>

Yeah, but then you get all these black markets for energy. The Electricity Mafia charging protection money for the plug-your-car-in speakeasies and whatnot.

I have a problem with this from a strictly financial standpoint. Most people shouldn't ever buy a new car, they should always buy something a couple of years old. Cars are an expensive depreciating asset, and buying two years old lets someone else take the hit for initial depreciation. This encourages a behavior that is the wrong one for most people. I also cringe at the thought of all of those perfectly good cars being destroyed, when they might still have years of use left in them. Ridiculously wasteful.

(Yes, I know that if everyone bought used, there wouldn't be enough new car purchases to provide used cars for people. But we all know that's not going to happen.)

Although I generally tend to advise against buying new (and take that advice myself), I disagree with your initial assertions/assumptions.

Cars aren't any more "expensive" a depreciating asset than anything else. For example, I have yet to see any evidence that they depreciate any faster than a major household appliance.

I also disagree that there is, necessarily, such a thing a "initial depreciation." The big hits up front are sales taxes and agreeing to a price higher than the value. The former is an issue for used cars, too, as is the latter, though, perhaps, to a lesser extent, considering high-margin add-ons new car dealers try to sell.

The spread between price and value may be even more with a used car. Specifically, with a new car, one has at least something of a lower bound for value. With a used car, the value could well be 0, though, with well published price information, one tends to have an upper bound for price.

The other important aspect seems to be risk. With a new car, while it is under warranty, one has paid to avoid the risk of a sudden, expensive, mechanical failure. What I like to remind my friends is that, though this may well be the case, one is never compensated for time or inconvenience if there is a failure.

With a used car, although the operating costs over the short term may be unpredictable, over the long term, it evens out. More importantly, if one chooses a reliable manufacturer, the overall risk of breakdown can be adjusted very close to zero with adequate preventative measures.

All that said, I, too, am against the Clunkers program for basic economic reasons: it encourages the wanton destruction of wealth.

Cash for Clunkers reminds me of the Broken Window Fallacy

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

Although I'm generally progressive and agree with the environmental goals of this program, I worry that it's essentially encouraging people to take on new debt through car loans. Aren't we as a society already highly overleveraged?

Interesting that 8/10 new cars that were purchased where foreign. I wonder what percentage of that rebate trickles into American pockets and which goes overseas.

I think what's slightly more interesting is the fact that the top 10 purchased cars are all small cars, given that the majority of the cars likely came from suburban America.

There is a slight stat game going on here that may or may not be intentional. The evidence is at #10 Ford Escape FWD. Trucks and SUV's come in a variety of transmission configurations and are actually counted as unique models for these stats.

Here is normalized list from earlier this month http://money.cnn.com/2009/08/07/autos/cash_for_clunkers_sale...

That's not necessarily true. Brands which sold a lot of different models could sell a large number of cars without making it to the top 10 models.

Here's the breakdown by manufacturer from the DOT press release:

  New Vehicles Manufacturers

  Toyota - 19.4%
  General Motors - 17.6%
  Ford - 14.4%
  Honda - 13.0%
  Nissan - 8.7%
  Hyundai - 7.2%
  Chrysler - 6.6%
  Kia - 4.3%
  Subaru - 2.5%
  Mazda - 2.4%
  Volkswagen - 2.0%
  Suzuki - 0.6%
  Mitsubishi - 0.5%
  MINI - 0.4%
  Smart - 0.2%
  Volvo - 0.1%
  All Other - <0.1%

Do note that foreign company does not mean a transfer of capital over to foreign hands. TM has a pretty large industrial footprint inside the US, and then you've got pensions and other funds that own TM paper.

and the top 10 traded in were all American. that's pretty damned embarrassing.

.. and quite predictable.

>the Ford Explorer topped the list of most traded-in clunkers

We helped with that. I had a 2002 Explorer with 145K miles that we traded in for a Honda Odyssey. Since we went from the SUV class to the car class, the mpg rating difference only had to be five mpg to qualify for the $4500 subsidy.

As a libertarian, I oppose this program, but it certainly was an appealing proposition considering that I would have likely gotten $3K max if I sold the Explorer outright. What is sad is that, while there were a bunch of things I didn't bother to get fixed (air conditioning, etc.), the vehicle was still quite drivable and probably would have lasted another 100K miles with three or four thousand in maintenance. A huge percentage of the world's population can only dream of one day owning a car that we as Americans are sending to the scrap heap.

The statstics I'd really be intersted in (and these would be impossible to measure precisely, buT well-thought-out estimates woul be helpful.) would be the total estimated energy usage of new vehicles purchased under the program, compared to the energy usage of the clunkers traded in, and with that net result compared to the energy used in manufacturing all those new cars.

WoW not one of the top 10 sold cars is a GM model - though that's not surprising. Though you'd think since all their troubles which were noted in Nov 08 they'd try to get a car out in the market that would be more attractive then any Honda, Toyota and Ford.

Why did we bail them out? For the 40K Volt that may provide 230mpg?

If, merely by deciding to do so, GM were capable of putting a car on the market that would be more attractive than those competitors, wouldn't they have been doing that before Nov 08 and thus not been in need of the bail out in the first place?

here's the DOT press release with more stats: http://www.dot.gov/affairs/2009/dot13309.htm

I wonder how much GM's badge engineering hurt/help them - no individual model is on the top 10 seller list, but they sold more new vehicles than anyone aside Toyota: more than Ford or Honda.

Hurts. Always has. All the extra overhead from the redundant dealer networks, the overhead from maintaining multiple 'differentiated' products, redundant marketing, etc. I'd be surprised if that nonsense didn't eat enough off their profit for them to still fall beyond Toyota and Honda.

I'm starting to think that the only reason they killed Pontiac instead of Chevy (despite being more popular), was that it allows them to axe more dealers from the network.

I also hope they'll incorporate more 'Saturn' lessons into the remaining 'Chevy' car lines. But given how long they've refused to do that, I'm not exactly optimistic.

That's probably the reason GM is down to Chevy/GMC/Cadillac, comparable to Ford/Mercury/Lincoln or (more appropriately) Chrysler/Dodge/Jeep. Though even in this situation probably 1/3 of the brands named could be dropped no problem.

You forgot Buick.

GM also has Saab, Opel, Daewoo, Holden, and Vauxhall, but is selling Saab, Opel, and Vauxhall.

I fear the mpg stats are misleading because of the inverse nature, but as a rough approximation, 690,000 cars were replaced. Their average mpg went from 15.8mpg to 24.9mpg (these numbers were most likely calculated incorrectly by the DOT). At 10,000/year that is a savings of 230 gallons/car/year or about 1/6 of a billion gallons/year.

Very roughly, it would appear to have been a good buy purely from the import/export angle assuming that each gallon saved comes out of our imports.

(This also may be very wrong because the program only accelerated the replacement, so it isn't fair to assume that the clunker would still be running 10 years from now. On the other hand, it may have spurred people to more efficient cars to get the larger rebate. That could be a lifelong change when people realize they can get along fine with a more efficient car. I only rarely miss my 17/18mpg 3/4T truck now that I drive a cheap 25/40mpg tiny car. I can borrow or rent a truck when I need it.)

Here's a state-by-state breakdown per capita: http://bit.ly/rVneF

The original link is not really that long: http://verifiable.com/charts/3803

I never feel comfortable clicking those shortened URLs.

I'm curious who came up with the title "cash for clunkers" it worked quite well.

Whomever did, it's funny that it would appear to be against it from a cursory examination, what with using such derisive term, and yet the effect is probably just the reverse... (negative association) hence maybe even a supporter. Or proponent. A social hack of sorts.

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