Cash for clunkers bill cuts fuel consumption–running the numbers

Environmentalists and even some Democratic U.S. Senators have criticized the cash for clunkers legislation that President Obama is expected to sign as “Handouts for Hummers.”
 
They say the bill doesn’t set high enough fuel economy targets especially for SUVs. Cars have to get at least 22 mpg and 4 mpg better than the vehicles traded in, to be eligible for a $3,500 voucher. Light trucks and SUVs only have to get 18 mpg and 2 mpg better than the vehicle traded in to be scrapped. Full-sized SUVs only have to get 15 mpg, or an improvement of 1 mpg.

While those improved numbers may not sound like a lot, small mpg improvements can mean significant savings at the pump. Small mileage improvements to very inefficient cars yield bigger savings than similar mileage improvements to more efficient cars. To illustrate the point, the chart below lists five potential trades that would earn vouchers under the Cash for Clunkers program, and the amount of fuel and cash each would save. (We assume the cars are driven the national average of 12,000 miles per year. Mpg ratings are EPA-sourced combined averages, as the law specifies. And gasoline is $2.70 a gallon.)

We list five trade-ins from our “clunkers to junk” list and five Consumer Reports recommend cars that could replace them. Four of the cars get 5 mpg better than the car they are replacing; one gets 10 mpg better. The three light-trucks that achieve a 5 mpg improvement will get vouchers worth $4,500, while the car will get only a $3,500 voucher. The car trade that nets a 10 mpg improvement would earn a $4,500 voucher.

As the chart illustrates, if you own the new car for five years, the gas savings over the clunker can nearly double the dollars in your pocket when you add it to the amount of your voucher.

Trade-in	mpg	Purchase	mpg	Gallons saved per year	Money saved per year	Voucher
1993 Dodge Ram (4wd)	12	Chevrolet Silverado (V6, 2wd)	17	294	$794.12	$4,500
1998 Nissan Pathfinder (4wd)	15	Nissan Murano (AWD)	20	200	$540.00	$4,500
1996 Chevrolet  Astro	16	Ford Escape (4-cyl., AWD)	21	179	$482.14	$4,500
1998 Olds Aurora	18	Volvo C30	23	145	$391.30	$3,500
1998 Mercury Grand Marquis	18	Hyundai Elantra	28	238	$642.86	$4,500

—Eric Evarts

Update: President Obama signs Cash for Clunkers bill.
For more information on the Cash for clunkers program, see our guide.

Comments

[Steve P]

The decision is harder for me.

I have a 1984 Ford F150 that I use for taking the trash to the transfer station and picking up building materials.

The insurance is $150/yr and Maine state excise tax about $30. Pretty minimal continuing costs. Yearly mileage is less than 500 miles, so it's not exactly draining the oil reserves. The biggest expense was buying new tires a few years ago ($300).

While it gets pretty poor gas mileage (15 mpg or so from the 300 cu in straight-six), it always starts, passes inspection yearly and is cheaper (negating the original purchase price used) than renting a truck or the cost and hassle of deliveries.

I'm tempted by the Cash for Clunkers offer, but financially it doesn't make sense unless I project forward to when the current pickup is unserviceable. Using the government's $4500 now might ease the pain I'll face in another five years or so.

[Ben]

First off this isnt an apples to apples comparison. You go from a 4wd truck to a 2wd truck and an astro van to a small SUV. Might as well go from a 4wd truck a sub-compact hybrid to really put on the savings....

Furthermore, it touts gas savings as if it helped ease the burden on a car purchase. This COMPLETELY negates to include the cost (estimated) of a new car minus the trade in bonus and a projection of gas savings over an estimate of ownership (3-5 years). Sure trading in your truck might save you $1500-2500 over a 3-5 year time span, but in the process you may end up with a $18000 in debt at purchase. Granted these are choices the individual should make, but showing "omg I can save $500 a year if I buy a new car" is one of the reasons the credit crunch happened: people bought just cuz it sounded like a better idea.

Not

I expected better work for consumer reports.

[Jeremy]

Seriously, what about insurance? I don't think insurance on a 1980 pickup is equivalent to insurance on a brand new car. This is terrible research. Look at every aspect and then get back with us. I never expected Consumer Reports to become a haven for the Democratic Party, but it looks that way more and more.

[brando]

I always reset the trip counter when I get gas. I divided the miles by the gallons purchased and it was 14 mpg, which is about 4 mpg less than what it says I get with city driving.

But apparently when it's a new car, it's supposed to get a combined city/highway of 20 mpg. That's 2 mpg too much (18 max) so I'm screwed out of the CARS program.

There's really no reason my car should be on the road, but I'm going to keep driving it into the ground. Good job government!

[luigi]

i have 1990 nissan sentra does it qualify .

thanks.

[Mike]

Think of the program this way. My old Dodge "beater" as we call it in Vermont qualfies for $4,500 voucher. I will trade for a new Chevy Cobalt, list price $14,500. Now, the Cobalt is only $10,000. GM rebate is $2,000. Cobalt is now $8,000. GM loyalty cash is $1,000 (I own an Impala too). Cobalt is now $7,000. My GM Credit Card earnings is $3,000. Cobalt is now $4,000. Dealer discount is $500. New Cobalt is now $3,500. Nothing wrong with that, I say. My Dodge was worth nothing and I bought a new car for $3,500.

[Aaron]

Seems like just another way for the greedy blood suckers in D.C. to put the average guy/gal even further into debt. Hey, get rid of the car you have paid off and pay very little in insurance and registration for and get a brand new, overpriced car.

Wow, I'll get right on it! I don't think so, nice try.

[Matt]

I have a 1996 Ford Bronco 4wd that gets an estimated 12 mpg. I am trying to sell it for $3500 but if i trade it in then i get $4500. Sounds good to me but on the other hand my insurance is cheap and its paid off. If i trade it in on a new car then it also comes with more responsiblities like a car payment and higher insurance.. Plus what about my credit, its not good and i know i would not get approved to even buy a new car even with $4500 down. So it all boils down to keeping my guzzler that is paid off and is cheap on inusurance rather than a huge car payment and expensive insurance. Unless you are planning to give me $4500 cash and i will by a car for that much. I dont want to put myself in the whole.

[Jackie S]

The trade-ins and vehicles suggested for purchase in the chart will not fulfill the requirements in the government program. The news programs explained that in order to receive the $4500, the new vehicle had to get at least 10 mpg more than the trade-in clunker. Only 1 of the new vehicles in the chart qualifies.

[Bill Grover]

My 91 Chrysler New Yorker is just over 18 mpg. What exceptions are there that allow it to qualify? I am ready for a new car

[Jeff Bartlett - Consumer Reports]

Jackie - Beware the soundbites on TV, especially with something as confusing as the CARS rules. To qualify the trade in must have less than 18 mpg. To get the max credit on light truck, the new vehicle has to have just a 5 mpg improvement. The 10 mpg requirement is for cars.

This post has spells out the rules in a handy chart:
http://blogs.consumerreports.org/cars/2009/06/president-obama-signs-cash-for-clunkers-car-allowance-rebate-system.html

[mike]

i am letting go of my 1998 f-150 which was never used as a work truck. it was a pleasure vehicle. the ball joints are gone. the tires are bad and the clutch is making noise as are the front berings. i also think there is something wrong with the rear end which was replaced by a junkyard Rear End after an accident ripped out the original.
the vehicle had 3 paint jobs a new master cylinder a new prop in the rear end and a rear main replacement when i first bought it.
i bought a KIA 2009 spectra

[Nicole]

Well here my husband and I are with a 1988 Jeep Cherokee that is just hanging on but after going and looking into what it's combined gas mileage, like Brandon on June 29th, it is 20 mpg so we don't qualify either. I think the government...again...has not done it right. Whatever they do they will do poorly. You know that it isn't running as clean as the new cars do. So I guess my husband will just run it until it doesn't run no more!

[Mark Gerard]

I have to laugh at CU's suggestion that people with a Mercury Grand Marquis trade "up" to a Hyundai Elantra. The demographic who buy Grand Marquis' (older folks) aren't going to want a subcompact imported Korean car. These folks are solidly BUY AMERICAN and if their Grand Marquis' aren't available, they will probably defect over to Buick. CU doesn't seem to understand that many of us in the heartland love our big domestic cars, and want the safety and comfort that come from domestic large cars. I don't care how much gasoline money I save if I'm miserable driving some tiny underpowered Asian tin can. There's more to life than saving money.

[jerry]

My 1994 Ford Bronco Eddie Bauer is the only car I have bought brand new. It is the most dependable car I have ever owned. No way would I trade her in for a compact. I going to keep her on the road as long as I am. Sorry Obama, You are not going to get mine.

[Marta Davies]

I have an 84 Ford Mustang, 5.0L GT that is a true piece of junk. I want to get rid of it with this program, but I cant... the registration requirement outlined in the CARS info online is a gray area, especially in CA where the car is registered. Nowhere in the CARS documents does it say whether or not Planned Non-Operation cars should be INCLUDED or EXCLUDED from the program. The CA DMV is saying these cars dont qualify, but who is the CA DMV getting this information from? Not the CARS information online... I've even called the CARS Office of Chief Counsel, with no response of course. Any attorneys out there? Any advice? Thanks a lot to our Gov't for subsidizing an industry that doesnt keep up with lean and proper business practices... lets reward them with new customers and a Gov't handout! YEAH!!