Cash for Clunkers: Destroying Used Car Supply

[zoog]

Re: Cash for Clunkers: Destroying Used Car Supply

An excerpt from Doug Casey ...

(Something about the law of unintended consequences comes to mind)

http://www.caseyresearch.com/displayCdd.php?id=225

A clunker that travels 12,000 miles a year at 15 mpg uses 800 gallons of gas a year.

A vehicle that travels 12,000 miles a year at 25 mpg uses 480 gallons a year.

So, the average Cash for Clunkers transaction will reduce U.S. gasoline consumption by 320 gallons per year.

They claim 700,000 vehicles so that's 224 million gallons saved per year.

That equates to a bit over 5 million barrels of oil. 5 million barrels is about 5 hours worth of U.S. consumption.

More importantly, 5 million barrels of oil at $70 per barrel cost about $350 million dollars.

So, the government paid $3 billion of our tax dollars to save $350 million.

The government spent $8.57 for every dollar saved.

Nice. I discussed this with some friends, who pointed out that the $3 billion for $350 million assumes the cars are only driven for one year and then abandoned. So after nine years the gasoline savings equals the $3 billion spent. That assumes the price holds steady at $70. Figuring the price of oil will likely continue to go up over the next few years, the timeframe could be reduced.

I was/am not a fan of the cash for clunkers program, just noting the conclusion in that bit is not really correct.

[ThePythonicCow]

Re: Cash for Clunkers: Destroying Used Car Supply

More importantly, 5 million barrels of oil at $70 per barrel cost about $350 million dollars

With minor changes in wording, but the same numbers, this same analysis showed up in the newly posted subscription HAT TRICK LETTER from Jim Willie, CB. He does not say where he got it from, but that's common for him. His newsletter is an indiscriminate vacuum cleaner for such stuff (I doubt Eric Janszen subscribes to Jim Willie, or vice versa ;). I love them both.)

In any case, there are five parts of this calculation with which I disagree.

1. The calculation compares the cost of the Cash for Clunkers program with the cost of one years savings of oil. However the replaced cars will be on the road for perhaps ten years.
2. The calculation switches from retail gasoline to crude oil in midstream, without notice, without divulging what numbers it uses to do so, and without accounting for the roughly half of a barrel of crudes product that goes to other uses than gasoline.
3. When I attempt that gallons of retail gasoline to barrels of crude oil conversion myself, I cannot quite duplicate these results. Here's what I get:
   • the stated 320 gallons/year times 700k cars equals 224 million gallons/year;
   • at about 20 gallons gas per barrel of crude (rough average of various values at http://fatknowledge.blogspot.com/200...in-barrel.html) this 224 million gallons per year requires 11.2 million barrels of crude per year.
   
   The calculation you quote of $70 per barrel costing $325 million implies that 4.6 million barrels of crude are needed per year. I don't see how the calculator got from 4.6 million to 11.2 million.
4. Even if all this showed that the gas saved cost less than the cash spent, it still doesn't show it's apparent point, that of a stupid socialist government. This is for the obvious reason that saving gas might not have been the primary and exclusive purpose (reasonable or otherwise) of this program, any statements of some government official notwithstanding.
5. Finally pray tell just who performed this original flawed calculation? Copying such raw meat almost verbatim, without references resolvable back to an original source (in the case of Jim Willie, without even mentioning that it is a copy, as I suspect it is) complicates the readers task of separating chaff from wheat.

This quoted calculation is a nice example of how a flawed piece of an "ostensibly numerical calculation resulting in a cynical conclusion" can get all the way around the world before a sensible analysis can get its pants on.

[don]

Re: Cash for Clunkers: Destroying Used Car Supply

And then there's the Rx Factor- Roxstar, get ready. How many of these "gotta buy something!" honey-pots will repo at a higher than average rate. (Remember- the $4,500 could be the deposit. When combined with monthly-payment-crafted leasing, an irresistible pitch to many Americanos.)

On the bright side, repo'd vehicles sitting back at the dealership consume no gasoline Very Green. :rolleyes:

[mikedev10]

Re: Cash for Clunkers: Destroying Used Car Supply

i have a tool (sorry math's not all displayed) here - the inputs and assumptions are available on the reference tab http://mike.developer10.com/clunkers.swf

you can do other numbers to run how dumb the program is by looking at the cost and spreading it over those that used in after subtracting out those that were going to buy a new car anyway too.

[zoog]

Re: Cash for Clunkers: Destroying Used Car Supply

With minor changes in wording, but the same numbers, this same analysis showed up in the newly posted subscription HAT TRICK LETTER from Jim Willie, CB. He does not say where he got it from, but that's common for him. His newsletter is an indiscriminate vacuum cleaner for such stuff (I doubt Eric Janszen subscribes to Jim Willie, or vice versa ;). I love them both.)

In any case, there are five parts of this calculation with which I disagree.

1. The calculation compares the cost of the Cash for Clunkers program with the cost of one years savings of oil. However the replaced cars will be on the road for perhaps ten years.
2. The calculation switches from retail gasoline to crude oil in midstream, without notice, without divulging what numbers it uses to do so, and without accounting for the roughly half of a barrel of crudes product that goes to other uses than gasoline.
3. When I attempt that gallons of retail gasoline to barrels of crude oil conversion myself, I cannot quite duplicate these results. Here's what I get:
   • the stated 320 gallons/year times 700k cars equals 224 million gallons/year;
   • at about 20 gallons gas per barrel of crude (rough average of various values at http://fatknowledge.blogspot.com/200...in-barrel.html) this 224 million gallons per year requires 11.2 million barrels of crude per year.
   
   The calculation you quote of $70 per barrel costing $325 million implies that 4.6 million barrels of crude are needed per year. I don't see how the calculator got from 4.6 million to 11.2 million.
4. Even if all this showed that the gas saved cost less than the cash spent, it still doesn't show it's apparent point, that of a stupid socialist government. This is for the obvious reason that saving gas might not have been the primary and exclusive purpose (reasonable or otherwise) of this program, any statements of some government official notwithstanding.
5. Finally pray tell just who performed this original flawed calculation? Copying such raw meat almost verbatim, without references resolvable back to an original source (in the case of Jim Willie, without even mentioning that it is a copy, as I suspect it is) complicates the readers task of separating chaff from wheat.

This quoted calculation is a nice example of how a flawed piece of an "ostensibly numerical calculation resulting in a cynical conclusion" can get all the way around the world before a sensible analysis can get its pants on.

Grrr, go get em tiger... err cow.

One difference in your calculations and theirs is the number used for gallons per barrel of oil (via wikipedia):

The standard barrel of crude oil or other petroleum product (abbreviated bbl) is 42 US gallons (34.972 Imperial gallons or 158.987 L). This measurement originated in the early Pennsylvania oil fields, and permitted both British and American merchants to refer to the same unit, based on the old English wine measure, the tierce.

As GRG55 and others would tell us, the actual number of gallons of refined gasoline from any theoretical barrel of oil varies, and would never be the entire contents of the barrel of oil. So the 42 gallons / barrel number does not represent the real-world realities of how much gasoline comes out of a barrel's worth of oil during refining, but for simplistic calculations like these, it's a standard number to use. Judging from the angst in your post I'm pretty sure you're not going to like that answer, but there it is.

Using 42, the barrels of oil = 5,333,333, thus "a bit over 5 million barrels of oil". Not sure if rounding errors accounts for the difference between "5 million barrels of oil at $70 per barrel cost about $350 million dollars" and my calculation that $70/barrel = $373,333,333 per year saved. From there I calculated about 8 years to pay back the $3 billion, if reducing oil consumption was the only reason for the program.

[ThePythonicCow]

Re: Cash for Clunkers: Destroying Used Car Supply

So the 42 gallons / barrel number does not represent the real-world realities of how much gasoline comes out of a barrel's worth of oil during refining, but for simplistic calculations like these, it's a standard number to use.

Ok - it seems you have found the likely way they got 5 million barrels of oil required, not the 11 million I calculated. They assumed that all the barrel of crude oil became retail gasoline, one for one and just used the fact that a barrel equals 42 gallons, in simple liquid measures.

You state:

So the 42 gallons / barrel number does not represent the real-world realities of how much gasoline comes out of a barrel's worth of oil during refining, but for simplistic calculations like these, it's a standard number to use.

All I know about oil I found on Google this afternoon, but from what I found and referenced:

at about 20 gallons gas per barrel of crude (rough average of various values at http://fatknowledge.blogspot.com/200...in-barrel.html)

we get about 20 gallons of retail gas from a barrel of crude oil, along with a bunch of other stuff, not the 42 gallons that you claim is the "standard number to use."

Without further evidence, I doubt we get 42 gallons of retail gas from a barrel of crude.

Thanks for solving one piece of the puzzle, how they got 5 million barrels, not 11 million.

[Ghent12]

Re: Cash for Clunkers: Destroying Used Car Supply

Ok - it seems you have found the likely way they got 5 million barrels of oil required, not the 11 million I calculated. They assumed that all the barrel of crude oil became retail gasoline, one for one and just used the fact that a barrel equals 42 gallons, in simple liquid measures.

You state:
All I know about oil I found on Google this afternoon, but from what I found and referenced:
we get about 20 gallons of retail gas from a barrel of crude oil, along with a bunch of other stuff, not the 42 gallons that you claim is the "standard number to use."

Without further evidence, I doubt we get 42 gallons of retail gas from a barrel of crude.

Thanks for solving one piece of the puzzle, how they got 5 million barrels, not 11 million.

If you want to split hairs, 700,000 cars getting a $4,500 discount would cost the taxdebtors $3.15 billion.

Of course, one has to wonder what the impact would be of 700,000 cars not made and not sold. How much crude oil would that save? You need to power your factories and ship your cars across the country, after all. Increasingly every day, it seems, I find the road not traveled to be the more appealing one.