What ‘cash for clunkers’ could have been spent on

by Kai Hsing

With the program’s environmental and economic benefits nearly negligible, billions could have been better spent encouraging more people to buy cars that make a real difference – plug-in hybrids.

junker-clunkerWEB

Much of the discussion around the “cash for clunkers” fervor is as polarizing as the politics involved – you either dismiss the program as a failure in both theory and practice or you declare the program a success while rejecting criticism of the program as GOP firestarting. With further consideration, one realizes that the cash for clunkers program actually has a lot of moving parts to consider before disassembly – unlike what they’ve been doing to the clunkers themselves.

On one level, cash for clunkers could be deemed a success – the program has so far increased sales in its brief period of activity, with Ford posting its first sales increase in two years and the overall industry posting its best month of 2009. The overwhelming popularity of the program has also been lauded as a measure of its success (or irresponsibility), with $1 billion exhausted in $4,500 increments in just one week.

Despite the fact that the Ford Focus (mpg: 24 city/35 highway) has been the top-selling one of the top-selling vehicles among those who traded in their “clunkers” for new cars, a closer look reveals that six out of the 10 best-selling anti-clunkers were from foreign automakers.

On the other side, every single one of the top-ten clunkers being traded-in is American in brand – though we all know that the question of domesticity and product origin is a complicated matter in itself.

It’s been argued that the supposed intentions of the cash for clunkers program are well-founded – to get gas-guzzlers off the road and replace them with more gas-efficient (and hence less polluting) vehicles while at the same time spurring the imploded car industry. However, the environmental impact of the program has been called into serious question. The AP estimated that the program would probably save about 700,000 tons of carbon dioxide emissions a year – which sounds like a lot until you realize that the U.S. creates nearly 6.4 billion tons annually.

And the 72 million gallons of gas to be saved annually under the program? American drivers go through that much petrol in about four-and-a-half hours.

Despite these concerns, much of the criticism remains unapologetic (from the same AP story):

“There’s 260 million vehicles on the road and you’re talking a quarter-million vehicles. It’s not even close. It’s just a drop in the bucket,” said Bruce Belzowski, a scientist at the University of Michigan’s Transportation Research Institute. “It’s really small numbers. But if you don’t start somewhere, where are you going to start? It heads the country in the right direction.”

Does cash for clunkers really fulfill that promise? I’ve written here recently on how government policy can affect positive consumer choices in a constructive and effective manner, but the cash for clunkers program does not go far enough in affecting consumer choice when it often only improves the net miles per gallon by a few mpg and when you consider that the money used for the program was taken from Department of Energy funds to develop new technologies for reducing greenhouse emissions.

What I always hear from investment people is that you should always diversify your investments. Some of the cash for clunkers money could have instead gone into programs that involve renewable energy development and transportation planning, There is a useful place for the cash for clunkers program, but that’s only in eliminating the worst-polluting vehicles (and those with the longest-remaining time on the road) and replacing them only with cars offering the highest mpg to create a much higher net yield than we’re seeing with the program.

A more constructive and interesting way to use some of the $1 billion spent so far (with $2 billion coming soon) would have been to further push for the development and use of plug-in hybrid (PHEV) car technology, which allows hybrid vehicles to also serve as electric vehicles – giving the fuel economy of an electric with the flexibility of a hybrid by using the existing refueling station infrastructure. While tax credits for consumers who convert their hybrids (mostly Toyota Priuses) were included in Obama’s economic stimulus bill from earlier this year, the credits don’t quite go far enough to encourage immediate adoption, which would make the greatest difference environmentally.

The legislation offers anywhere from $2,500 to $7,500 in tax credit towards the purchase of a plug-in hybrid vehicle – something that no car company manufacturing at the moment. The first is supposed to be the Chevy Volt, which isn’t due in showrooms for more than a year from now – even as the technology to allow hybrids to average more than 100 miles per gallon (at a cost of 75 cents per gallon) has become readily available in the past few years. The costs and difficulties of conversion have been gradually reduced through the work of organizations like CalCars, who also provide valuable resources for owners of existing hybrid vehicles to convert their cars to PHEVs without waiting for Detroit or Japan to come around.

For these type of conversions, the stimulus bill offers only a 10 percent credit, up to $4,000 total, and only through December 31, 2011. According to CalCars, to convert a vehicle yourself would cost around $6,000 for all the batteries and parts, while having your vehicle outfitted by a growing number of companies offering PHEV conversions will set you back at least $10,000 – a hefty amount for the average consumer unless greater subsidies are provided.

The benefits of plug-in hybrids are obvious. They are available now utilizing today’s technology and infrastructure while dramatically reducing greenhouse emissions if adopted in large numbers, and like any investment in green technology, provide new job opportunities for both emerging entrepreneurs and a reappropriated labor force. But instead of paving a new path for the future, all that the cash for clunkers program will accomplish in the end is to further encourage the appeasing, incremental changes from the car industry that got us into this mess in the first place.