Ok, so how many ‘clunkers’ will this C4C Act actually take off the road?  Let’s do some math (a practice lost on many of the unwashed bloggers out there).

With the recent injection of another $2Billion, the C4C program now has $3billion.  It provides from $3,500 to $4,500 guaranteed trade in. Only 7% of the entire $3bl can be used for light trucks – it’s meant as a ‘family car’ stimulus.  Many reasons for this, not the least of which are: Truck sales are withstanding the downturn much better; there are less inventories of trucks; and the difference in gas mileage between a 20yr old F150 and a 3yr old F150 is nominal.

For sake of this illustration we will use an average of $4,000 per vehicle; or 750,000 vehicles ($3Bil / $4k = 750,000). So we are looking at taking about three quarters of a million clunkers in trade for new cars.

As of 2005 the U.S. alone manufactured about 5 million cars and 7 million trucks annually (12mil vehicles a year). Looking at just cars (the C4C target) we will assume the U.S. manufactured about 4 million autos a year for the last 25 years – That’s a nice round 100million vehicles produced in the U.S. Imports roughly matched exports over the period, so we will stick with roughly 100million autos ‘on-the-road’ since 1984.

If we assume that 80% of that production is still on the road, we have about 80million clunkers – as defined by the 25yr rule in the C4C Act.  That means the cash for clunkers program affects less than 9/10ths of one percent (.0095% to be exact) of the production over the 25yr period.

So the C4C is obviously not about minimizing ‘clunker impact’ on the environment.  Although, the 4 to 10 mpg higher MPG requirements will have an impact, of sorts, on gas consumption. In example, an overall average gain of 7mpg for each of the 750,000 vehicles would amount to 5,250,000 more miles per gallon.  Not a bad number.

Ok, we can put down the calculators now.  I just wanted to make a point: The C4C program is all about reducing inventory of new cars. Period. It has some nominal side effects, but its target is the auto glut in the nation’s dealerships.

Here’s some facts around the auto inventory:  For those of you that cry about U.S. manufactured vehicles not given favoritism; foreign car makers manufacture a lot of vehicles in the U.S., and 60% of the auto industry employment in the U.S. comes directly or indirectly through foreign auto sales.  U.S. auto manufactures (both U.S. owned and foreign owned) export more vehicles that we import (81.5% of production exports vs. 71.8% imports) so the affect of foreign auto manufacturing, sales and export on this economy is greater than the affect of U.S. auto industry – especially after the recent plummet in manufacturing at GM & Chrysler. If C4C were focused only on U.S. brands, it would fail as a stimulus.

There is also a myopic view by some right wingers that stimuli that “favor some industries at the expense of others” is ineffective and somehow unfair. This view fails to take into consideration all the supply chain and service chain functions that follow manufacturing and employment – no matter what the industry.

As inventories decline, demand will have the effect, in time, of reigniting manufacturing.  In turn, the suppliers to these manufactures will start seeing their excess inventory of parts and components dwindle as manufacturing ramps back up.  Industry suppliers will need to soon replenish through the extensive Just-in-Time (JIT)  supply chains that support the industry.  Even at below normal manufacturing output, employment and the services that support the employees will be better off than at zero output – as many manufacturing plants have all but stopped production with the current inventory glut.

I also read a blog from a pretty good blogger (you know, one of those that finds time to research and actually ‘think’) about the loss of the clunker as a social crutch for the poor (can’t afford new cars – must buy used) with all the inventory of clunkers being traded in (the C4C requires the vehicles be recycled – they cannot be resold).  But as I noted before, the real impact on the used care market (that has its own inventory glut right now anyway) is less then 1%.

This same blogger must be my age. He remembers “the art of reviving and coaxing old cars as a boyhood ritual” – and laments the loss of ‘all those clunkers’ that today’s youth will not be able to keep running after their prime.  Have you looked under the hood of the vehicles made in the last 20 years?  You need a computer degree, a plumber’s license and a shop full of unique tools & equipment for each component on the vehicle.  I’ll challenge any shade tree mechanic out there to change the spark plugs on a 2001 Taurus in the 15 minutes it took me to change the ones on my 1966 Plymouth Valiant slant six!

I installed my own Hurst shifter, Holly 4BBL Double pumper and Hooker Headers on my ’71 Mustang Fastback 351 Cleveland – now THAT was a car! I looked under the hood of a 2009 Mustang at a dealership not long ago. I cried for a week.

My friend, the C4C is not what has ruined “the art of reviving and coaxing old cars as a boyhood ritual” – it’s Technology.

JB

References and Sources

CARS. (2009). Helpful Q&As for Consumers, The Car Allowance Rebate System (CARS), retrieved August 8, 2009 from: http://www.cars.gov/faq

Miron, J. (2009).  Commentary: Cash for clunkers is a clunker, CNNPolitics.com, retrieved August 8, 2009 from: http://www.cnn.com/2009/POLITICS/08/03/miron.clunkers/index.html?iref=hpmostpop

NationMaster. (2009). North America; United States; Industry – Manufacturing, NationMaster.com International Statistics, retrieved August 8, 2009 from: http://www.nationmaster.com/country/us-united-states/ind-industry

Raach, C. (2009). Clunkers used to build American pride; The Daily News Journal, retrieved August 8, 2009 from:  http://www.dnj.com/article/20090807/OPINION02/908070316/RAASCH++Clunkers+used+to+build+American+pride

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