[asa] Cash for Clunkers

From: John Burgeson (ASA member) <hossradbourne@gmail.com>
Date: Mon Sep 21 2009 - 16:11:42 EDT

For the record, I, myself, think the CARS program was not the best use
of the money spent.

But some emails floating about don't seem to have their facts in order.

Here is one email -- and my response to it. Tell me what I am overlooking:

You may have seen this email (spam) from "a friend in the oil business":
A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year
of gasoline.
A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year.

Therefore, the average "Cash for Clunkers" transaction will reduce US
gasoline consumption by 320 gallons per year.

The government claims 700,000 vehicles were sold, so that equals a
savings of 224 million gallons per year.
224 million gallons equates to a bit over 5 million barrels of oil.
5 million barrels of oil is about ΕΊ of one day's US consumption.
Also, 5 million barrels of oil costs about $350 million dollars at $70/bbl.

Can you believe it? We spent $3 billion to save $350 million.


The person "in the oil business" doesn't seem to know much about the
oil business.

He seems to think that a barrel of oil = 45 gallons of gas.

The average, which varies among refiners, is about 19 or 20
gallons/BBL. Assuming 20, the savings would be 11.2 million barrels of
oil.So the annual savings, at $70/barrel, is about $784 million, not

He also assumes all the savings occur only in the first year. If one
assumes the average clunker had 4 years of useful life left, then the
total savings would grow to $3.136 billion.

About a wash, EXCEPT that the $3.136 billion will be paid to our own
people, and not to the Saudis. As such, it will stay in circulation
here and add to the economy. Sent to the Saudis it will just be a
wealth transfer.

There are other nuances one could add to this analysis. There is the
cost of building the additional 700,00 cars, for example. On the other
hand, will oil plateau at $70? I think not. Gasoline prices are at a
low now. Watch them rise.

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Received on Mon Sep 21 16:12:49 2009

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