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Published: Tuesday 27 August, 2013

winter coats canada winter coats canada Does the winter coats canada Cash for Clunkers Program Make Sense

The Cash for Clunkers program sounds great, but the cost of gasoline would have to exceed $5.00/gallon over the next 10 years for the typical clunker to cost more to own and operate than a typical new car with 70% greater fuel efficiency. More winter coats canada over, the reduction in greenhouse gases under the program is less than the uncertainty in the climate models used to predict the relationship between carbon dioxide and global warming.

The Cash for Clunkers program, officially called the Car Allowance Rebate System CARS, will give you a rebate of $3500 to $4500 if you trade in a vehicle that makes 18 or fewer miles per gallon and is less than 25 years old when you buy a new car that has an average highway/city fuel efficiency of at least 22 miles per gallon. The amount of the rebate depends on the difference between the fuel efficiency of the clunker and the car you buy. The program is in effect until 1 November 2009, or as long as funding lasts, whichever occurs first. CARS has been so popular that it will probably run out of its current funding well before 1 November. winter coats canada A bill before Congress would add another $2 billion to the program.

Certainly new car dealers are happy with CARS: it has been a part of as many as 250,000 new car sales this year. New car sales help to create and sustain jobs in the automotive business, and those jobs put money into the world economy.

In addition, more fuelefficient cars produce less carbon dioxide, a greenhouse gas that contributes to global warming.

All that seems to be good news, but there is more to the story. CARS has a significant financial downside.

Lets look at the program from the perspective of owning and operating a clunker, vs. a new, car.

Suppose your clunker is 5 years old and makes 15 miles per gallon and that gasoline costs $3.00/gallon.

The average new 25 milepergallon passenger vehicle sells today for $27,000, and will be retained by the original owner for about 10 years. Suppose you get $4500 trading in your clunker, making the net sales price $23,500. Over that period, interest on the car loan will cost about $2,000, insurance will cost about $10,000, repairs will cost about $5,000, and gasoline will cost about $21,000 assuming it is driven 15,000 miles per year at $3.00 per gallon of gasoline, for a total of $61,500. On average, at age 10 years, it will sell for no more than 15% of its original sale price, or about $4,000, for a net 10year cost of about $57,000.

In contrast, the purchase price and interest on a clunker you own are a sunk cost, meaning those parts of car ownership wont affect what you will pay in the future. Over the next 10 years, insurance on the clunker will cost about $7,000, repairs on average will cost $15,000, and gasoline will cost $30,000 15,000 miles/year at $3.00/gallon. Assume you give your faithful steed to a salvage yard at the end of that period. The net 10year cost will be $52,000 $5000 about $400/year less than a new car, even with the maximum CARS rebate.

The cost of gasoline would have to exceed $5.00/gallon over 10 years for the typical clunker to cost more than a typical new car with 70% greater fuel efficiency, even with the CARS rebate.

Now lets look at CARS from a taxpayer perspective. Government by foreign countries. Government didnt have a deficit, any rebate program would simply take dollars out of taxpayers pockets and return some fraction of those dollars. Because of the cost of administering rebates, the government returns to the taxpayers no more than 90% of the money collected in taxes. All other suffering being the same, therefore, rebate programs represent at least a 10% loss to taxpayers and an increase the size of the federal bureaucracy.

In the current national deficit spending environment, CARS rebates come from money borrowed from foreign governments mainly the Peoples Republic of China PRC. taxpayers must pay interest on the borrowed money, something like 5% per year on the unpaid balance. It is extremely unlikely that this money will be paid back to the PRC in less than 10 years, so the accrued cost of money will be something like 50% of the principal. For each rebate dollar, therefore, American taxpayers will pay about $1.50.

Even on the environmental front, CARS isnt in the fast lane. The reduction in carbon dioxide emissions under the program, measured against the background of total carbondioxide emissions from passenger vehicles, though real, is small. If we assume that 500,000 clunkers are traded in for new cars that are 70% more fuelefficient, the overall reduction in carbon dioxide production from passenger vehicles would be about one percent. Ive had conversations with other clunker drivers my big old Chevy truck qualifies about the benefits and drawbacks of joining the program. Thanks for the well reasoned arguments.

I had reached the same conclusion my old truck will be paid off in two months and if I park it and let it sit I wont be contributing to emissions. Plus, the embodied energy required to make the truck has been paid in full vs. a new car. Grist wrote a funny story detailing how far you would have to drive a new Priuus to pay off the embodied energy and emissions required to make the battery.

Plus, all my urban friends with their nice, gas efficient cars love me because I have the big truck needed to haul all their stuff around when they move! winter coats canada

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