Thursday, January 21, 2010

Cash for Clunkers Impact

When this program was rolled out, a friend asked me what the impact on consumption would be. I finally got around to running some of the numbers. Please let me know if you find any mistakes in the math. In summary, the individual benefits are pretty good, but the impact on the country as a whole are easy to dismiss.

According to the summary statistics from the program web site the average mileage of the new vehicles was 24.9 MPG and the trade-in mileage 15.8 MPG. This means there is an average overall increase of 9.2 MPG, or a 58% improvement. Not bad, right? So for an individual that drives the average 12,000 miles per year, the additional 9.2 MPG means they will save 281 gallons per year (note the math is 14,000/24.9 - 14,000/15.8, not 14,000/9.2). Using the average price of regular for 2009 of $2.31 per gallon, this is a yearly savings of $649 or a monthly savings of $54. So in addition to the tax rebate, buyers have a virtual $54 taken off their monthly car payment, making this a real "no-brainer" for those that had the opportunity to take part. This is especially true if you look at the current gas prices and longer term trend.

So what was the impact on the country? In total, there were 677,081 vehicles replaced, creating a savings of 190 million gallons per year! Sounds pretty great, right? Well it's a start, but when you compare it to the total United States consumption of 378 million gallons/day, it turns into a drop in the bucket. In numbers, this is only a 0.1% decrease in consumption per year. This is a far cry from the 58% improvement we started with.

There are some good insights here still. As an individual, when you go to buy another vehicle. Think about the true cost per year. If you get a vehicle that has even a modest MPG improvement, you might be able to afford a larger car payment than you think. Myself for example, if I were to get a Prius, I'd go from about 26 MPG to 48 MPG (highway, which is what I mostly drive). That's a difference of 22 MPG. I also drive around 20,000 miles per year and the 6 month gas price average is $2.56. That means I could save $902 a year or $75 a month. Up next, electric vehicles, but alas my lunch hour is over.


s0sheamex5 said...

Optimism, my friend!!! You have to start somewhere...

So corrections would include:

Transportation gas consumption is 71% of 387 million gallons/day, therefore totaling ~268 million gallons/day or 0.9% decrease in transportation gasoline consumption. Considering that there has not been significant consumption reduction in the US since the early '90s from the Reagan fuel efficiency regulations, that is an excellent step in the right direction. Of course, with oil price still high and looking not go below $60/barrel possibly every again, this program reduced the overall current potential consumption meanwhile alternative fuel options remain as profitable option to fossil fuels.

I agree it helped keep some money in the average american's pocket; let's hope they did not spend it on something that needed to be shipped half way around the world...

Thanks for running the numbers. Small steps forward... Let's figure out how to make our house $0 overhead, grid neutral!!

Bruce said...

Thanks for looking Sean. Your correction is not actually so however. That 71% is of total oil consumption for transportation, so that is gasoline, plus jet fuel, and all other products used in the transportation industry. This is still an interesting fact however. To think that 71% is used for just moving things around is crazy. Ultimately efficiency is going to have it's limits, perhaps the biggest reductions will be when we figure out how to not use transportation so heavily. I.e. telecommute, buy local, etc.