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Wednesday, August 5, 2009

Putting the Klunk in Cash for Clunkers.

There have been a few complaints against the cash for clunkers program as being just another government bailout boondoggle. One writer calculated that the actual increase in the number of cars that would be sold this quarter would be around 22,000. They then divided that figure by the one billion dollars and determined that the cost per additional car sold was around 40-44,000 dollars per car! Ouch!

I don't think the above calculation takes into account mitigating circumstances such as would sales have really been only 22,000 cars less without the discount? Also, were I a superficial ninny and my friend who was driving a real clunker suddenly shows up in a car nicer than mine, I'm heading to the car lot and I'm going to buy a newer, better car, and WITHOUT the clunker discount!

So it may be too early to predict how many more cars will be sold. Plus, there are a LOT LESS dealerships around these days, so actually gaining 22,000 more car sales could actually work out to a significant percentage increase among the remaining car dealerships.

However, I think there is a more tangible concern to roil over in regards to the cash for clunkers progrm. Some of the clunkers being turned in are simply being replaced by an 09 clunker. Check out this ad,

CLICK ON IMAGE TO ENLARGE
What does purchasing a huge SUV have to do with the cash for clunkers program? You have to really study the ad to see that the bottom car in the ad, the Yukon, has no cash for clunkers discount attached, they just chose to add a similar discount to try and get the super hatchling out the door with the other slightly less clunkery vehicles.

Which brings me to my gripe.
ONLY A 2 MPG INCREASE and a customer can turn in an old super heavy clunker for a new super heavy clunker?
I understand that 2 miles per gallon improvement on a big heavy clunker is percentage wise better than it sounds. However, I would have tied the clunker discount directly to the MPG of the New Car Being purchased, that's what really matters, isn't it? Any new car that gets 27 miles per gallon combined, or over, gets a 2,500 dollar discount. For every additional mile per gallon over 27 that a new car can squeeze out in the miles per gallon category, I would have added an extra 250 dollars discount, up to 40 miles per gallon ceiling on the new car purchase. If you turn in a clunker and buy a car that gets 39 miles per gallon combined, you would get a 5,500 dollar rebate.

The higher the MPG of the car being purchased, the higher the likelihood that that new car won't tear up the streets and make potholes out of the newly minted pavement that has been resurfaced with infrastructure stimulus money, and, perhaps, we stall off making new potholes from bombs in other parts of the world as we seek out new sources of oil.

Lets have some perspective here. Is it really that big of a deal to drive a car that gets really good gas mileage if it means less wars around the globe, AND the government is willing to help you pay for the car? It's just too bad the government had to put the k in klunker and just not go far enough with this program in terms of really promoting higher miles per gallon cars.

I talked about the importance of combining stimulus programs so they end up complementing each other. The more fuel efficient cars on the road, the longer the roads last, ergo infrastructure money going towards roads is an investment that now lasts longer. In my opinion paying people to barely upgrade their miles per gallon on their new car purchase misses the whole point of the cars for clunkers program.

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1 comment:

Alessandro Machi said...

I just found a Los Angeles Daily News Editorial from August 6th newspaper, (the day after I wrote this article), that makes some of the same points this article makes.

Although when I went to find the online version it apparently was posted August 05th at 11:45:29 am.

It appears the cash for clunkers program is supposed to be augmented to put more of a focus on miles per gallon improvements.

The Los Angeles Daily News did a more thorough job in their editorial than I did in my article and their editorial makes for a good read.

GETTING MORE CLUNKER MILEAGE.

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