How can the cars for clunkers program possibly hurt poor people and the environment? Wouldn’t the government credit help the poor buy a new car? Doesn’t getting the “clunkers” off the road help the environment?

First, the poor, and in many cases the not even poor. CNW Marketing Research in Oregon estimates the average price of a used car in the U.S. was about $9,000 at the end of 2008. In this current economic climate that is simply out of reach for many people, poor and otherwise.  This is especially true if people are trying to do the responsible thing and keep from becoming hopelessly indebted., something all too easy to do when buying a car.

Thankfully, if one needs reliable transportation there are plenty of solutions far below that figure….for now. Due to the vastly increased quality and reliability of vehicles manufactured over the last 15 years, a car with 80,000, or even 120,000 miles on it may still have plenty of commutes left in it.

That’s where CARS could actually end up hurting the poor.

Here’s how the cash for clunkers program works:

・    Qualified consumers may participate in the CARS Program between July 1, 2009 and November 1, 2009 or when authorized funds are no longer available.
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・    Qualified consumers will receive a credit of $3,500 or $4,500 for an eligible trade-in toward the purchase of lease of an approved vehicle under CARS Program.

・    Qualified consumers will receive the $3,500 or $4,500 credit at the time the purchase their new vehicle.
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・    Dealers must provide consumers with any other advertised rebates or discounts in addition to the credit they receive through the CARS Program.
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・    Consumers should expect to conduct their deals at their dealership of choice, not on the Internet.
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・    Consumers should expect the dealers to provide their best estimate of the scrap value for their eligible trade-in vehicle. Dealers are allowed to deduct $50 from this value for their administrative costs.
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・    Consumers should expect that all information collected through the CARS Program will be kept confidential. Social Security numbers are not required for a CARS transaction.

What vehicles are eligible under the cash for clunkers program, and how does the dealer get their money?
・    Your vehicle must be less than 25 years old on the trade-in date
・    Only purchase or lease of new vehicles qualify
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・    Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
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・    Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
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・    You don’t need a voucher, dealers will apply a credit at purchase
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・    Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
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・    The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.

You’ll notice that vehicles submitted under the cash for clunkers program are required to be destroyed. They must have the engine disabled. Initially congress called the number associated with the vehicle’s destruction, and I’m not making this up, the “End of Life Vehicle Solution” number. Evidently some members of Congress though that sounded a bit too Nazi Germany, and with good reason. That nomenclature has since been replace with the more benign term “NHTSA Disposal Facility ID”

The engine destruction and vehicle salvage requirement potentially causes hundreds of thousands of good, used vehicles to be removed from the used car marketplace. Those a just the cars that people who can’t spend $9,000 for a new car would be in the market for. Anyone who has taken basic economics can tell you that when you reduce the quantity of a good supplied without reducing the quantity demanded, the price of that good will increase. So in this case you have thousands of good, used vehicles that can not be sold, but you have not reduced the number of people who want to buy these vehicles. That means that the price of the vehicles must increase.

If you have an older vehicle it gets even worse. In many cases folks that own these vehicles work on them to keep them running. Used parts, such as engines are often employed to make this happen. The supply of such used parts will also be reduced, because not only will the vehicles be off the market, so will their parts. Again, lower income people get screwed by the very government that is ostensibly out to help them.

Need a good , reliable vehicle to get the kids to school or practice? How about a Toyota Previa minivan? A 1994 Toyota Previa is hardly a clunker, yet it’s just the type of vehicle that will be snagged by the program, due to it’s 17mpg EPA combined rating. That is the new rating. The EPA changed their fuel mileage ratings a few months back and most of the figures were revised either up or down a few MPG. The Toyota’s average retail sale price, according to Edmunds is $2,700. Just the ticket for reliable, family transportation and a bargain price.

Maybe you need a good, used pickup truck for work. A 1996 Ford F-150 XL 2dr Extended Cab long bed with a 6 cylinder would be a great work truck, and again, hardly a clunker. Edmunds lists the average dealer retail price for one at about $2,700 and change. It would be reliable and give plenty of service to get you and your tools to the job site and back every day. Unfortunately, such vehicles will become harder to find and more expensive as a result of the CARS program.

Let’s see, fewer yet more expensive good used vehicles, and fewer yet more expensive good used parts with which to keep them running. That doesn’t sound like a program that is out to help the poor and other folks that don’t want to buy a new car, but still need good, affordable transportation.

So, how does the Cash for Clunkers program hurt the environment? It would seem that removing a resource (in this case vehicles) and requiring it to be replaced by a new resource cannot always have a net gain. No matter the extent of the recycling or the efficiency of the operation, you are removing a functioning resource and replacing it with a new one that required manufacturing.

In many cases these are not truly clunkers, either but good cars and trucks whose only sin was that they got less than 18mpg combined. If they were replaced by vehicles that got 23mpg, would that really help the environment once you take into account the loss of having to produce an entire, new vehicle to replace them? Forgetting for a moment the whole debate about weather or not taxpayers should help their neighbors buy a new car, how much gas can you save and how much does that help the environment?

If the old cars got 17mpg, and assuming they would have been driven for 75,000 miles after the  time they were destroyed, how much gas would that save? 75,000 / 17mpg = 4,412 gallons of fuel. 75,000 miles / 23mpg = 3,260 gallons of fuel. That means the fuel savings per transaction is 1,152 gallons. If fuel costs an average of $3.50 a gallon over that 75,000 miles the average consumer saves $4,032 in fuel.
In order for the environment to realize a savings, the environmental cost of the transporting and scrapping the old vehicle and manufacturing and transporting the new one must be less than the environmental cost of burning the 1,152 gallons of fuel.  That sounds like a nebulous proposition.

The program does help the auto industry – Good
The program hurts poor and low income Americans who need transportation – Bad
The environmental impact is not as easy to calculate.

Since the Federal government is now in an unprecedented position to control the kind of vehicles rolling off the assembly lines, and they have made it abundantly clear that they feel the future is in smaller, more fuel efficient vehicles, that means one thing. You are going to see smaller, more fuel efficient vehicles being produced buy U.S. automakers in the near future, and larger, more powerful, and safer vehicles (that Americans would really rather be driving) will gradually be phased out or dramatically reduced in availability.

The market conflict is this; the government is advocating the production of vehicles that many Americans don’t really want to drive, and only do so out of necessity. Witness the fact that sales of the Toyota Prius, the hybrid car that Toyota dealers could not keep in stock in the summer of 2008, has experienced a 50% drop in sales from the summer of 2008 to the spring of 2009. This is the case even though heavy government subsidies make it less expensive to buy than pure, consumer demand dictates. Some states have also enacted advance technology vehicle subsidies, substantially lowering the cost of such vehicles compared to others in the fleet.

This  all means that fuel prices in the U.S. are going to go back up again, no matter what other economic conditions dictate. Realistically, they have to. Expensive fuel is the only way to force American drivers to buy the smaller, more fuel efficient vehicles that the auto manufacturers will be building. The federal government has an ownership stake in these companies, and the only way for them to make sure the automakers (and the taxpayers) see a profit building the fuel sipping or electric vehicles is to ensure fuel prices are high. The Obama administration has also made it clear that they feel it is important, both economically and environmentally, for car manufacturers to produce hybrids, plug in hybrids and other technology de jour laden modes of transportation.

There will be many tools used to ensure that the prices you see at the pump will be higher in the coming years. Increased fuel taxes will happen, even though they are not politically popular. They will have to increase, because as fuel economy standards rise, the amount of tax revenue received by government for each mile traveled will decline. Since the government, federal or otherwise, is loathe to relinquish even a penny of revenue, they will have to increase the fuel tax rates to compensate.

Gasoline demand is relatively inelastic, so the the drop in consumption caused by a price increase will not be enough to reduce total revenue. It will still grow, because people and goods still have to use transportation. The fuel tax increases will also nudge fuel prices back upwards to the point where the new, smaller, more fuel efficient vehicles start to be attractive again. The administration will kill two birds with one stone; increase demand for the new cars produced by Detroit, and get people out of their cars, something environmental advocates have desired for quite some time.

For all the campaign promises about keeping the U.S. away from foreign oil dependency, it is becoming clear that the Obama administration would rather do that by reducing overall oil consumption, rather than increasing domestic supply. There are no signs significantly expanded domestic production is on the horizon anytime soon. In fact, quite the contrary. The administration has shown signs that they will keep it difficult to find and extract new sources of oil within our own borders.

Witness the extension of the comment period for new offshore oil and natural gas leases from 60 days to 6 months as was done a few months ago. This has the effect of delaying the time when these areas can be used for domestic energy production.  Another piece of legislation that will increase the price of fuel is the pending Waxman-Markey cap and trade proposal, of which the administration is a very strong supporter (President Obama met with congressional members on this yesterday to try and convince some holdouts to approve it). This will require that carbon emissions be capped at 2005 levels. The net effect is that and it will cost money to any industry who releases carbon. The goal of such legislation is to make carbon emissions more expensive so that people are incentivised to produce less atmospheric carbon.

Producing vehicles releases carbon, which will make the price of vehicles increase, but burning fossil fuel releases carbon too. That means that the price of fuel will increase as well, as is the desired effect of the Cap and Trade bill. Part of what president Obama proposed in his meeting yesterday was a short term increase of domestic proiduction in exchange for those holdouts approval of the cap and trade bill. He will then be able to claim he has allowed domestic production to increase. While this is true as a point of fact, the increase is very short term, only 2 – 3 years. Since it takes almost this long just to get production going, and far longer to drill new offshore wells,  the practical increase allowed will be very small from a domestic production standpoint. That means the effects of his short term increases will have very little effect on fuel prices, and will likely be overshadowed by other factors.

The U.S. Geological Survey recently estimated that the Bakken Formation in North Dakota and Montana may hold 3.65 billion barrels of oil. In addition, the outer continental shelf region will largely be left untouched, although it contains over 50 billion barrels of oil that could be extracted. At some time, domestic resources will have to be extracted (or exploited, depending on which side of the argument one sits). This will create jobs and reduce dependency on foreign oil. As the country’s population rises and the economy gains momentum, there will be a increase in the quantity of fuel demanded. We will have to get it from somewhere.

Even if we experience a large scale shift to plug in hybrids, it will be decades before enough of these are in service to reduce gasoline demand to the point where there is a significant reduction in our crude oil consumption. We can turn to green sources such as wind and solar, but collectively those two sources supply only about 2% of our domestic electricity production. The President has indicated that he will double these sources during his Presidency. George Bush did likewise, although he was eviscerated in the media and in progressive circles as being an environmental demon. It made little difference then, and another doubling will make little difference in the short term. A few more doublings, perhaps.

If the president does put 1 million plug in hybrids on the road by the end of his term it will definitely reduce the amount of gasoline burned. If the total number of automobiles on American streets did not increase for the first time in our history, here would be the net effect of those million new plug in hybrids: 1 million cars, driving 12,000 miles annually, would burn zero gasoline. On the inaccurate and  very generous assumption that only carbon free sources would generate the power for these new PIH vehicles, you would replace a like number of miles driven that would have burned 480 million gallons of gasoline, (assuming they were older cars that got only 25mpg, not the new CAFE figure of  35MPG new ones will be mandated to) with zero crude oil consumption.

According to Gibson Consulting, there are about 19.5 gallons of gasoline produced from each barrel of crude oil. That means we would eliminate the demand for 24.6 million barrels of oil annually by going to 1 million hybrid vehicles. That sounds like a huge number, and is more than a few drops. However, according to the U.S. Energy Information Adminsitration in 2007 the U.S. burned 390 million gallons of gasoline per day for motor fuel. That means that the 480 million gallons saved, while certainly a good start, (and we’ll have to start somewhere at some point) amounts to only about 0.34% of our annual gasoline consumption. That seems like quite a bit of hell to go through for American business and consumers to cur back on gasoline use by only 0.34%.

Increasing fuel prices will further hobble an economy that’s trying to improve, raise prices on heating oil and motor fuels for consumers that are already smarting from the struggling economy, cost jobs in the short term, and delay the economic recovery, no matter how much money the government keeps pumping in (when will it run out, anyway?)
Eventually the much touted “green jobs” producing advanced technologies for vehicles and other energy using consumer and manufacturing goods will increase to the point where they will overcome the jobs lost in the short term, but I’m not an economist, so I can not pinpoint when that will occur. The point of all this is that increasing fuel prices to drive us into the new, fuel efficient cars made by automakers because that is what the government wants, will be a painful experience. Will it be worth it?

As a condition of grazing at the public trough, Congress will be appointing a “Car Czar” to oversee the U.S. auto industry. As with many projects undertaken by Congress, there is a great chance the effort will be misguided and the execution flawed.

Will the incoming Czar know anything about the auto industry they’ll be entrusted to repair? Given they’ll have the reported authority to veto any expenses over $25 million, they will effectively control what vehicles the automakers will produce in the future. In this day and age, it’s pretty difficult to launch any vehicle development program for less than $25 million.

Performance vehicles don’t really fit well with the targets of the administration to reduce “man-made global climate change”. The fact that tens of thousands of climatologists, physicists, and other qualified scientists still say there is no clear indication that climate change is man made seems to play no part in the decision. See this for more information on the debate, and yes, it’s still far from closed, despite what so many would have you believe.

The incoming Obama administration is reportedly mulling over creating an entirely new Federal bureaucracy, dealing directly with climate change and energy policy. The Car Czar will no doubt be in constant communication with this new federal agency (if it ever comes to pass), the EPA, and the Energy Department to ensure the newly designed vehicles don’t step out of line.

Will all of this collaboration and oversight produce vehicles that people actually want to buy? Are performance vehicles even profitable for the automakers to produce in the first place? Because a high performance vehicle by its’ very nature is going to use more resources that one that gives tepid performance.

Or is it? Actually, this could force our automakers to start producing high performance vehicles that are much more “green” than their predecessors. It’s all in how they’re designed. One thing about electric vehicles is that they tend to develop prodigious torque at a very low RPM; 0 RPM to be precise. It’s due to the way electric motors function.

Since the majority of driving in American cities includes a large amount of stop and go situations, this gives electric and hybrid powered vehicles ample time to put their low RPM torque characteristics to good use. What if the high performance vehicle of the future is a diesel-electric hybrid? It’s recently been proven by Audi and Peugeot that diesels don’t have to be slow. In fact, they can be fairly fleet of foot. Audi has used their V-10 TDI power plant to great effect at LeMans.

BMW has just introduced a new, diesel powered 3 series, the 335d. It gives about 35mpg on the highway and can do a 0-60 sprint in 6.1 seconds. Combine a small, turbo diesel that uses modern high pressure injection and fuel management electronics, (like the new BMW) and a high efficiency electric motor(s) and you could be talking real performance with a minimum of environmental impact.

Toyota has been talking about reintroducing the Supra with a V-6 gas / electric hybrid power train. It would definitely be performance oriented, but give decent gas mileage.

Of course there will always be those that contest the need for anything high performance on the grounds that standard performance is all anyone really needs. Take that mindset to extremes and you’ll be walking or taking the bus to work. After all, does anyone really “need” personal transportation?

With new CAFÉ standards, an incoming environmentally friendly administration, and a possible governmental bailout then control of the automotive industry looming, are drivers witnessing the swan song of the performance automobile? Will there ever be another Cadillac CTS-V, Corvette ZR1, Porsche Turbo, or even Charger SRT-8?

Are we to behold a drab and boring future, devoid of automotive excitement? Is it the ‘80’s all over again? Remember the frighteningly tepid vehicles, with dubious quality, and lackluster design we were forced to endure in the dark days of the automobile? Does anyone not see how producing such vehicles pushed the Detroit automakers over a precipice from which they never extricated themselves?

If a “Car Czar” again forces our automakers to produce such rolling trash heaps, we may as well just shut the doors now. Maybe then the UAW would give some union concessions. By the way, how can I get paid $35 an hour to play cards?

What do members of Congress know about the auto business? Well, nada, of course. What qualifies them to dictate to those who presumably have expertise in the business what kind of products will return them to profitably? As with many things Congress meddles in, they have no expertise. Of course, that hasn’t stopped them from meddling in the past, and I seriously doubt it will in the future.

One of the things that has been reported in various locations is that they’ll be strongly encouraged to produce new fuel efficient vehicles. The problem here is that car makers must produce what people actually want to buy. That’s one of the ways Detroit got into so much trouble in the first place. For about 30 years, until relatively recently, they made a fairly inferior product.

Oh, sure, there were exceptions, but on the whole, Detroit was soundly trounced in the product arena by offerings from overseas, such as the fine vehicles from Honda, Toyota, and Nissan. Americans responded as consumers always do, by voting with their checkbooks. The votes weren’t kind to Ford, GM, and Chrysler.

In the last decade they began to turn things around. Recently some pretty darned good vehicles have come from Detroit. World class, even. The new Cadillac CTS springs to mind. Other recent offerings from the Big 3 that bear mention in a positive light are the Silverado Pickup, the Corvette, Mustang, Chrysler 300, Pontiac G8, Ford Flex, and Chevy Impala. There’s also the upcoming Chevy Volt to consider, as a cutting-edge, new vehicle.

The problem now is that Congress wants the big three to produce the new, smaller, fuel efficient vehicle of the future. That sounds just great. Why is that a problem? It’s a problem because Americans are loathe to actually buy vehicles like that.

We want larger vehicles for larger families (and many times, smaller ones too), and American drivers have always had a love affair with power. As fuel prices recede from their record breaking spike of the summer, the chance of American drivers demanding cars like the Honda Fit in any kind of quantity will recede along with them. The fact is that the demand for these cars is almost purely economic. When people’s personal economies are impacted by high fuel prices, they turn to relatively fuel efficient vehicles.

Why would any of the big 3 auto makers want to produce smaller, more fuel efficient cars when the car buying public would rather be driving larger, less fuel efficient vehicles? Well the answer is, they wouldn’t.

They wouldn’t unless they could be guaranteed that there would be a demand for higher efficiency vehicles. Who could provide that demand? Why the meddlers we elected to Congress, of course. As incoming White House Chief of Staff Rohm Emanuel stated a couple of weeks ago, a crisis lets you do things you couldn’t get away with otherwise.

Many politicians and others would love to see higher fuel taxes. That would raise fuel prices, and that, in turn, would force American drivers to turn to smaller, more fuel efficient vehicles. Driving smaller vehicles that would consume something closer to “our fair share” of the world’s resources would make some tickled pink. That group would not include the majority of American drivers.

A bit of a back room deal would let so many groups be happy. The politicians would be saving the Big 3 and the environment at the same time. In addition, they can raise taxes on something with a fairly inelastic demand, so revenue will rise even as prices increase. You know they have to finance all these bailouts somehow.

The environmentalists would be thrilled that our resource consumption would be reduced. And the big three would be overjoyed to get their latest handout and the promise of some demand for their new products.

Over the long haul, more fuel efficient vehicles will have to be produced, as at some point in the future, prices will increase. The problem is that the development horizon, especially for advanced technology vehicles, is exceedingly long. That means that there will be a lag between when there is actually enough demand for these vehicles and when they begin rolling off the assembly lines.

There is also the question of cost. Such vehicles are very expensive, as new technologies always are. Does anyone remember the $4,000 PC? 15 years ago they were fairly common, but try to find one today that’s not a hot rodded, customized gaming rig. So it will be with new technology vehicles.

The problem for the average driver and taxpayer is that few drivers want to spring for the additional money it takes to purchase one of these cars. The new Chevy Volt will be about $37,000. That’s pretty steep for a 5 passenger sedan, when equivalents from Chevy, Honda and Toyota can be had for about 30% less than that. Toyota is still losing a bundle on every Prius they sell, even after almost a decade of production.

Why is this a problem for the taxpayer? Because you’ll be helping to pay for every one of these new vehicles that your neighbor parks in their garage, that’s why. There are hefty subsidies, in the form of income tax credits, to encourage their purchase by bringing their cost more in line with traditional vehicles. So, you’ll pay higher taxes to fund the industry bailout, the advanced technology vehicle subsidies, and the sure-to-be-on-the-horizon Federal fuel taxes. Make no mistake, driving will get expensive, even as fuel prices are dropping.

Who gets left out in all of this? Why the average, American driver, of course. Who kissers their ass in all this? Not those who they sent to Congress with their votes. Not the Big 3 execs, who will be glad to escape with a few billion and the promise of economic conditions that will favor the vehicles they’ve been directed to produce. Would someone please look out for the average driver?

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