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Euthanizing Cars Won't Heal the Economy or the Planet

Shikha Dalmia
August 12, 2009, 1:02pm

Our elected leaders were jumping for joy because they had managed to bribe clunker owners to trade in their old smokestacks for cleaner vehicles under the Cash-for-Clunkers programs. But will giving away free money really help the economy or the environment, I ask in my latest Forbes column?

"The program's basic idea involves paying owners of fuel-inefficient clunkers worth less than $4,500 a voucher up to the value of their vehicle toward a new, more fuel-efficient car on the hope that this will stimulate the moribund auto sector and slash carbon dioxide emissions. If you disregard the poor taxpayers financing it, everyone is a winner under this scheme.

"But that's only in the fantasy land on Capitol Hill.

"Edmunds.com, the nation's premier car-buyers' guide, debunked the stimulus claim even before the program was launched. It pointed out that even if the program succeeded in financing 250,000 cars in three months as originally planned, it would boost the economy as much as inducting Paris Hilton would boost the aggregate IQ of MENSA. That's because in any given quarter, about 200,000 such clunkers are traded in anyway. "In effect, we are paying customers to do something most would do anyway," noted Jeremy Anwyl, CEO of Edmunds.com. At best then, the program would drive about 50,000 additional trade-ins, which works out to a whopping $20,000 per clunker...."

"Department of Transportation Secretary Ray LaHood is going around touting the program as a roaring success because the government's list of the top 10 new purchases allegedly shows that drivers are trading in their gas guzzlers for fuel-sipping compacts in order to qualify for the full voucher. LaHood claims that the new vehicles are giving a combined average of 9.6 miles per gallon more than the trade-ins, delivering close to the maximum possible environmental bang for the buck.

"This convinced even critics of the original legislation, such as Sens. Diane Fienstein, D-Calif., and Susan Collins, R-Maine, to vote for its reauthorization. But there are two problems with this claim: One, even if one accepts LaHood's numbers, the fuel savings add up to only 72 million fewer gallons of gasoline every year--about what Americans consume in four and a half hours. This translates into 700,000 tons fewer carbon dioxide emissions annually--about what Americans emit every 57 minutes.

"Two, LaHood's numbers should not be accepted. Why? Because they are based on a false list of top 10 new purchases, an independent Edmunds.com analysis found. Indeed, the list that LaHood has been waving around, with the exception of a Ford Escape, contains mainly gas-sippers such as Toyota Corolla and Honda Civic with the holy Prius hybrid occupying the fourth place. But the list compiled by Edmunds.com contains two full-size, gas-guzzling SUVs and a crossover--with the Prius nowhere in sight. In other words, the program is effectively paying drivers to trade in their clunkers for--hang on to your recycled hats!--other clunkers. This undercuts LaHood's fuel economy claims by about 37%.

But there's more....."

Whole thing here.


Shikha Dalmia is Senior Analyst


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