Saturday, November 13, 2010

Cash for Clunkers: The folly of foolishness

I am not a professional journalist, nor am I a political commentator.  I am actually an Automotive Technology Instructor who teaches high school Sophomores, Juniors, and Seniors the basics of diagnosing, repairing, and maintaining cars and trucks.  One of the things I do to prepare lessons is head to the local salvage yard to look for examples, spare parts for shop cars or projects, and sometimes just for inspiration.  Lately, however, instead of inspiration, I have been beset with feelings of discontentment when observing the flood of cars and trucks, many of which were in decent and in many cases, desirable condition, which had been discarded like garbage.  Vehicles that had in many instances tens or hundreds of thousands of miles of reliable service left in them, instead relegated to the junk pile.  Although the tide has ebbed in recent months, the tidal wave of "Clunkers" that flooded most automotive recycling facilities has left it's mark indelibly on the automotive landscape in this country.  I have the feeling that it has definitely done more harm than good.  In fact, I believe that the CARS rebate program was a poor idea on many fronts.  Cash for clunkers, which destroyed countless decent, quality vehicles in the name of "Environmental Friendliness" turned out instead to be a greedy, corporate welfare affront to common sense and reasonable thinking.  Let's break it down to understand why C4C was a foolish waste of taxpayer money, good cars, and a tool of debt enslavement to dig out failing corporate interests.

Financial Bad Sense:

The reasoning that many people used during this whole fiasco was that they were going to get rid of the "gas guzzler" they were "duped" into buying for something more fuel efficient to "save money".  Many people saw this as an opportunity to lash out against big oil, because by getting a more efficient car, they could save money and "stick it" to the oil companies.  First off, let me be clear that I have no love for these oil companies and the travesties they create on a daily basis, nor do I appreciate the way they rake our wallets over the coals.  That said, however, this deal didn't save anyone any money, and those who "took advantage" of it in fact got taken advantage of.

As tax payers, we all got taken advantage of, because the 3 billion dollars that went into this lunacy came from our pockets to begin with.  If you traded your "clunker", you got pillaged even worse, because you probably didn't buy your new car cash, but rather, you financed it.  In addition, you are getting taxed on your subsidy at the end of the year, because it is considered to be income.  Lets play with the numbers to see what a poor decision this was.

Let's suppose you owned a car like the 1984 Oldsmobile Regency I recently sold (pictured above).  This car was one I owned for several years and was in excellent condition when I sold it to due to a growing family and the need for a more spacious and practical vehicle.  It ran very clean, easily passing emissions testing and was clean enough to pass for 2008 standards (the last time I got it emissions checked).  This was with over 186,000 miles on the odometer.  so first of all, we can eliminate this car from the "gross polluters" list, because it wasn't.  In fact, it ran very clean, because I maintained it.  I put a new catalytic converter on it when the original failed, and I kept it tuned up.  By the way, it was easy to fix and cheap to maintain.  This car would get 23 MPG highway, and 16 MPG city.  Since I do mostly highway driving, the city numbers didn't bother me that much.  However, for the purpose of this discussion, let's just assume it was a 50/50 mix.  the car would therefore have averaged 19.5 MPG.  If we assume $2.809 per gallon of gas, and 15,000 miles a year, we can come up with an annual fuel cost of $2,160.77.  Wow, that seems like allot.  That's a monthly average of $180.06 for fuel.  Consider the car only required liability insurance, however, and that there is no monthly car payment, and that it was easy and cheap to maintain, and we can get a better picture.  The annual cost to insure this car was $336.44, and according to my records, it cost me $362.83 in maintenance and repairs that year.  Now I realize that many people can't do their own vehicle repairs, so I'll adjust that figure for labor, and so for argument's sake, let's call it $1,200.  So what we have is an annual cost of operation of $3,697.21, which works out to $308.10 per month.  So what if then, hypothetically, someone traded a car like this in for a Camry "taking advantage
" of C4C funds?  Well, first off, they'd dump a gallon of "Engine Seize" down the crankcase, run the engine until it blew up (a gruesome process that likely releases more pollution into the atmosphere than 20 years of driving the car would have; if you don't believe me, do a YouTube search for cash for clunkers and watch the agony for yourself. Here is a link to get you started: ). The car would then be sent to a salvage yard, crushed, and recycled.  So he or she would then take the $4,000 for the trade in value, and put that down on a modestly equipped 2010 4 cylinder Camry, worth $23,590.  So he or she would then have to finance $19,590, which works out to about $368.00 per month for five years.  Now considering that it is a new car with a warranty, we'll say maintenance will average $25 per month, for a total annual cost of $300 for maintenance.  This car is EPA rated 22 MPG city, 33 MPG highway, for a 50/50 average of 27.5 MPG.  Using our gas price of $2.809 per gallon and 15,000 mile per year average, we get an annual fuel cost of  $1532.18, or $127.68 per month for gas.  Consider that you need full coverage on a car with a loan, and the insurance cost for this car (according to my insurance company, anyway) is $1,411.56, or $117.63 per month.  Annual cost of operation would therefore be $7,659.74, or $638.31 per month.  That is an extra $3962.53 per year, or an extra $330.21 per month to save $628.56 per year or $52.38 per month in gas.  So over the life of the 5 year loan, assuming your warranty didn't expire before the loan did, and you didn't have to foot the bill for major repairs, you would have spent $19,812.65 to save $3,142.80 in gas.  If this sounds like a good deal to you, then we need to meet!  I'll give you a crisp, new $5.00 bill for FREE if you give me one of your ratty, worn out $20 bills.  In other words, it makes no financial sense.

Environmentally Unfriendly:

We discussed one way that C4C is not green; mainly because it sucks a bunch of green from your wallet, but let's talk environmental friendliness now.  First off, I believe in environmentalism, at the practical level.  We all need clean air, water, untainted food, etc.  I believe it, and I know it.  I think it's wrong to eliminate your catalytic converter, or to turn up your diesel engine until it "rolls coal".  So I am not bashing environmental consciousness.  What I am opposed to is a throw-it-away mentality that claims that if it's not new, it's not efficient enough and it should be discarded.  Wastefulness, the last time I checked, was not very environmentally friendly.  Have you ever considered the amount of energy and resources it takes to build a new car?  Or how about to re-cycle an old one?  To melt, shape, forge, stamp, bend, machine, assemble, paint, mold, etc all the components to build a car, then transport it?  Surely its more than the 1,119 gallons of fuel that the above example would save. Further, it fosters an even bigger problem; apathy.  American drivers are becoming more and more apathetic about maintaining their cars.  The above example assumes that maintenance will be performed.  However, if a car is not cared for, it doesn't matter how new or how efficient it is supposed to be; it will pollute more and burn more fuel than if it were properly cared for.  How many cars are running around, new or old, with the "check engine" light illuminated on a daily basis?  When we call a car that is a few years old a "clunker" and assign a subsidized rebate dollar figure to it, where is the incentive to care for or maintain it?

But my uncle's cousin's brother's friend's former roommate's grandmother's niece...

Yes, we know the story, there's  this guy you know who made out like a bandit because he got $4,000 for a pile of trash that he bought from some old lady for $50 that he then traded in and got a slick new
Malibu, right?  Well, according to the math above... no.  He'd have made out better by spending $3,500 on a nice low mileage 1988 Crown Victoria or Caprice Classic.  But then, the government went and crushed them all, now didn't they?

Who did win, then?

Car companies, loan companies, and the government.  When the economy slumped, and people stopped spending money they didn't have, the government dumped this clunker on the American public.  People who were not good at math flocked to dealerships to get something that would save them money on gas.  So cars started selling again, loan companies started making money again, and older reliable cars that weren't completely computer controlled and government monitored were removed from the road... permanently.  You might have noticed that the government is kind of a control freak, so they didn't like those simple cars that couldn't be scanned in 30 seconds and tell big brother everything about your driving habits for the last five years.  So dealerships, manufacturers, loan companies, and Uncle Sam won out of this deal.  Which put us, the American public over a barrel; again.