Was Cash for Clunkers Worth it?

To determine if clash for clunkers was worth it, let's do a little math (I know, math sucks, but stick with me).

A vehicle that gets 15 mpg, and travels an average of 12,000 miles per year, uses 800 gallons of gas a year.

12,000 miles / 15mpg = 800 gallons

A vehicle that gets 25 mpg, and travels an average of 12,000 miles per year, uses 480 gallons of gas a year.

12,000 miles / 25mpg = 480 gallons

Seems pretty good so far, that's almost half as much. Almost.

With that number, the average clunker transaction will reduce US gasoline consumption by 320 gallons per year.

800 - 480 = 320

According to the New York Times, that bastion of truth (sarcasm), 700,000 vehicles were traded in for more "efficient" cars. If you take the average gas savings, 320 gallons per year, and multiply it by 700,000, there is a savings of 224,000,000 gallons of gas a year. Wow, pretty impressive right?

700,000 x 320 = 224,000,000

Now, there are 19.5 gallons of gas in 1 barrel of crude oil. So, we take the saved 224,000,000 gallons of gas a year, and divide it by 19, to get the number of barrels of oils saved each year. The result is 11,487,179.49 barrels of oil saved per year. Again, impressive.

224,000,000 / 19.5 = 11,487,179.49 barrels

So just how much is 11,487,179.49 million barrels? Well, in one day, the US uses 20 million barrels of oil. So in one year the cash for clunkers program saves about 1/2 of a single days worth of oil. Not so impressive.

11,487,179.49 / 20,000,000 = .57 or 1/2

How much is 11,487,179.49 million barrels of oil worth? Well today (09/11/09) a barrel of oil is worth $70.97. So, that means 11.49 million barrels of oil is worth $815,245,128.40. That's a pretty good chunk of change.

11,487,179.49 x $70.97 = $815,245,128.40

But let's put that amount in perspective. Just how much was spent on "cash for clunkers?" Well, according to the NYTs, $2.877 billion in rebates. That means that in order to save $815 million dollars, the Obama and Congress spent $2.87 billion. In other words, for every dollar saved, $3.53 was spent.

$2,877,000,000.00 / $378,506,666.43 = $3.53

Way to stimulate the economy Obama! Bravo, you brilliant minds on capitol hill!

Now, of course you have to take different things into account. For instance, savings over several years, the price of gas over time, the price of oil over time, inflation, etc.

You also need to take into account the impact buying new cars had, keeping in mind that a lot of them were not American cars. You also have to take into account the cost of disposing of the clunkers, as well as the money lost by mechanics and auto parts suppliers, that won't be fixing those older cars.

I'm sure I missed some other variables as well. But, that said, I think my point still stands.

Thanks John!


Anonymous said...

Thanks for the calculation. Although i totally agree with you....shouldn't you add in, any net affect on the economy? Supposedly it wasnt just about saving fuel but also stimulating auto sales?

Nifty Nick said...

Yes, you are right. But adding new auto sales, you would also have to add the cost of disposing of the clunkers, as well as the money lost by mechanics fixing those old cars, as well as the auto parts purchased for older cars. It is pretty complex.

Sick of the Idiots said...

Another point worth mentioning, beyond the cost of disposing of the clunkers, mechanics working on them, additional insurance premiums on the new vehicles as well as extra registration and licensing costs, financing costs,etc.... is that, even if it could be shown on a simple basis it actaully WAS a stimulus (which it obviously was not), all it would have done was pulled future sales into the present- therefore falsely inflating figures for the current fiscal period by advancing yet-to-come sales, therefore hurting purchases next quarter/year.

All in all, it is just another example of out governments miserable failure to manage ANYTHING.

And these are the people O-bummers supporters want in charge of 1/6th of the economy.... I DON'T THINK SO!

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