University of Wisconsin-Eau Claire

1. University of Wisconsin-Eau Claire Cash For Clunkers: What is it & What Happened? Drew Christensen Jared Farmer Laurelyn Wieseman Eric Jamelske Department of Economics University of Wisconsin-Eau Claire Chippewa Valley Center for Economic Research & Development

2. Overview • Program Goals • Program Guidelines • Cost of Reducing Carbon Emissions • National Auto Data • WI and Local Auto Data • Conclusion • Questions and Discussion

3. Program Goals • Get greener cars on the road • reduce carbon emissions. • Boost the auto industry, and by extension, the U.S. economy. Source: http://www.dot.gov/affairs/2009/dot13309.htm

4. Economics = Incentives

5. Program Guidelines • Clunker must be less than 25 years old. • Only purchase or 5 year minimum lease of new vehicles. • Clunker must have an average fuel rating of 18 or fewer MPG.  • some pick-ups and vans have different requirements. • Clunkers must be registered and insured continuously for the full year preceding trade-in.

6. Program Guidelines • Clunkers must be in drivable condition. • The program requires the scrapping of clunkers. • The new car must have a suggested retail price of no more than $45,000, and for passenger automobiles, the new vehicle must have an average fuel rating of at least 22 mpg. Source: http://www.cars.gov/faq#category-10

7. Cost of Carbon Reduction • Estimated cost of carbon = $237 to $365 per ton ($300). • Inefficient to pay more than this for carbon reduction. • Average MPG of clunkers= 15.8 • Average MPG of new cars = 25.0 • Average MPG increase = 9.2 Sources: http://www.cars.gov/faq#category-10

8. Cost of Carbon Reduction • Estimated average miles driven per year = 12,000 • Net reduction in gasoline use = 280 gallons per car • 12,000 x 9.2 • One gallon of gasoline burned = 20 pounds of carbon emissions. • Net reduction of 2.8 tons of carbon per car, per year. • 20 x 280 = 5,600 lbs

9. Cost of Carbon Reduction • Estimated 3-4 years (get new car earlier) • Between 8.4 and 11.2 tons of carbon eliminated • 3 x 2.8 or 4 x 2.8 • Recall the estimated cost of carbon = $237 to $365 per ton ($300) • Estimated value of carbon reduction = $300 x 8.4 = $2,520 per vehicle • Estimated value of carbon reduction = $300 x 11.2 = $3,360 per vehicle

10. Cost of Carbon Reduction • Average clunker payout = $4,200 • Estimated value of carbon reduction = $300 x 8.4 = $2,520 per vehicle • Estimated value of carbon reduction = $300 x 11.2 = $3,360 per vehicle • $4,200 > $2,520 ($1,680) or $4,200 > $3,360 ($840) • 700,000 vehicles replaced • Estimated loss of between $588 Million and $1.2 Billion

11. Cost of Carbon Reduction • Expensive/inefficient method of reducing carbon emissions • Drive old car longer (economy) • Drive new car more (better mileage) • More efficient new cars of the future • Under-valuing the environment • Value of jobs and increased auto sales • Additional cost of recycling clunkers (time and money) • However, carbon reduction was not the only program goal • Stimulate economy/boost US auto industry

22. Local Auto Dealers • Clunkers were really Clunkers • Good that they are off the road • New cars were mostly compact/sub-compact/mid-size • Few trucks and small suvs • Could have sold many more cars if we had them • Limited inventory • Had to wait for money from the government • Pay customer and pay auto company, then wait for reimbursement

23. Eau Claire Ford • 74 Clunkers traded in • Focus (40 mpg), Fusion (30 mpg), Escape/Mariner (23 mpg)

24. Markquart Toyota - Chevrolet • 150 Clunkers traded in • 80 Toyota and 70 Chevy • Yaris (40 mpg), Corolla (30 mpg), Camry (25 mpg) • Rav 4 (25 mpg) • Prius (50 mpg) • Cobalt (35 mpg), Malibu (30 mpg), Impala (25 mpg)

25. Ken Vance Automotive • 220 Clunkers traded in • 100 Honda, 60 Hyundai, 40 Volkswagen, 20 Pontiac • Civic (33 mpg), Accord (30 mpg) • Sonata (33 mpg), Elantra (33 mpg), Accent (33 mpg) • Vibe (33 mpg), G-6 (30 mpg)

26. Conclusions • Cost benefit analysis of carbon reduction • Expensive, many assumptions • Boost to auto sales • Nationally by automaker • In WI and EC • Generally short lived boost • Local dealers liked the program

27. Questions?