I hate to see old cars die. They represent the efforts of so many people—designers and engineers, mechanics, accountants, miners, and myriad others. And a car is such a personal object, perhaps it is one of the most personal objects we own. They are the second most expensive thing most people will ever purchase. Even the people who shop for a car just because they need a basic transportation device usually look at a few before settling on the right vehicle. Heck, how many times have you heard someone speak wistfully of that "new car smell" even though turpentines and long-chain polymers are rarely at the top of our favorite olfactory sensations list? (Oh, and what an entertaining list that is.)
With this in mind, my initial opinions of any car scrapping program like CARS (aka Cash for Clunkers) tend to be a bit dim. Generally, the thought of destroying things makes me uneasy. I’m always a bit sad when a building is torn down. It’s kind of like celebrity gossip: Some people are made happy when some celebrity destroys themselves. I don’t want to see it, though.
But I want to know whether I think that the CARS program is a good or bad idea. Perhaps by the end of this article there will be an answer, though I suspect not. This is a very complex issue that includes concepts such as well-to-wheel efficiency, lifecycles, oil, social behavior, and who knows what else. I’m going to try to break this analysis down into categories.
Overview of Cash for Clunkers
So that we’re all on the same page, here are the basic rules to get the CARS rebate:
1. Your exchanged vehicle must be less than 25 years old
2. Your exchanged vehicle must get 18 mpg or less according to current NHTSA data
3. The new car must get a minimum of four more miles per gallon than their old vehicle to qualify for the $3,500 rebate, and 10 more miles per gallon to qualify for the $4,500 rebate, though allowances differ for trucks and SUVs.
4. Your old car will be destroyed by a salvage yard.
5. The salvage yard must destroy the engine using sodium silicate, and may not resell any parts of the drivetrain including accessories, catalytic converters, mufflers, etc.
6. The salvage yard may resell some parts such as turn signals, sun visors, and other non-drivetrain parts.
Lifecycle Pt. I – Fuelin’ Up
The first issue is the lifecycle of the car being destroyed and whether this is an environmentally sound decision. A lot of energy and oil went into producing the old car in the first place and it is possible that the car has not yet met its potential lifecycle. In other words, if the car is capable of running for 250,000 miles and it gets destroyed in 80,000 (a reasonable estimate1, but no actual numbers are available), is that a waste of energy and oil? But wait, you say, the new car is more fuel efficient. True, but the question is whether that mpg difference makes up for the lost viability of the old vehicle.
To determine this, we need to look at the differences between what’s being taken off the road, and what people are buying. According to the stats (which I found here) the average fuel economy of the new vehicles is 25.3 mpg and the old vehicles is 15.8 mpg.
Using those same estimates, the number of gallons of fuel used over the expected and curtailed lifecycles of the clunker are:
250,000 mi. lifecycle fuel use: 15,822.8 ga.
80,000 mi. shortened lifecycle fuel use: 5,063.3 ga.
Now, let’s look at the total lifecycle for the new car:
250,000 mi. lifecycle fuel use: 9,881.3 ga.
Combining those figures together we get a total difference of:
80,000 mi. clunker fuel (5,063.3) + 170,000 mi. new vehicle use2 (((250,000mi. – 80,000mi.)/25.3mpg)=6,719.4) = 11,782.67 ga.
This is a fuel savings of 4,040.13 gallons which is an improvement, but I wouldn’t call it a knock out of the park. The average fuel economy of the new vehicles being purchased is too low for this to be a major improvement. In fact, the average of 25.3 is below the CAFE standard of 27 mpg3.
Lifecycle Pt. II – Buildin’ It
The fuel economy is one thing, but the manufacture of the vehicle also needs to be considered. According to some stats4 the oil equivalent of 2,340 ga. of gasoline into the production of a new vehicle. With this additional bit of information, we can re-examine those numbers from above.
To fully recapture the energy invested in building the car in the first place, the car needs to run out its lifecycle. But, since we are curtailing this, we are only using 32% of the initial energy investment (748.8 ga.). This means we are throwing away 1,591.2 ga. of gasoline5.
Now the fuel savings is reduced to 2,448.93 ga., which is not very impressive. More importantly, those 1,591.2 ga. of gas have just been wasted—it’s as if the fuel economy of the new car has been lowered to 21.8 mpg. Wow!
Lifecycle Pt. III – Crushin’ It
I can’t find any stats on how much energy goes into crushing a car, but I imagine it’s somewhere around 25 ga. of gas when transportation, crushing, etc. are all factored together. That’s an insignificant amount, so we needn’t worry about it.
However, the loss of parts is something that makes a difference. Alternators, radiators, fuel injection systems, and the like are also being destroyed. Although they can be recycled into new parts, there is a cost associated with this. Considering that these useful parts have already been manufactured and are frequently exchangeable between different types of cars (i.e., a GM truck alternator may be the same as used in a GM car) there is no good reason to let them go to waste.
The Social Factor
Does a program like this enforce the idea that vehicles are disposable goods like cell phones? While I personally believe that we shouldn’t consider anything to be simply disposable, it is certainly a bigger concern when the item is something as energy consumptive as an automobile.
One of the big differences between a cell phone and a car is that as the technology evolves cell phones become more capable and more usable. An iPhone is significantly more advanced than an old Ericsson. However, the technology in automobiles has barely advanced since the 1920s and when the technology improves the function of the vehicle is not that different. The only really useful difference between my ’00 Saab and my ’74 Fiat is that the Saab doesn’t break down as much. Outside of that, they both get me from place to place (usually…), have somewhere to put my stuff, and are fun to drive.
An upside is that people are trading in their SUVs and trucks for smaller passenger cars. Perhaps this will continue the trend toward smaller vehicles which are less wasteful in general6.
Emissions
This is a more significant win for the CARS program than the fuel economy. I don’t have the statistics available at the moment, but the trucks and SUVs being turned in produced disproportionately more pollutants than the smaller vehicles being purchased. Mainly this is due to byzantine emissions regulations that allowed trucks and SUVs to slide by with fewer emissions controls. Notably, cars like the Prius and the Fit produce cleaner air out the tailpipe than what is entering through the intake.
"Clunker" Definition
Recently, NHTSA redefined their rules for fuel economy. They then retroactively altered all of the fuel economies of cars from the past. In essence, they lowered all the figures. This is a bigger discussion than would fit here. However, some of the rejiggering of numbers have made some cars into "clunkers" if the definition is 18mpg or less.
A 1987 Saab 900, for instance, formerly got 20mpg, but now gets 18. I’d hardly call that car a clunker, and destroying something like the iconic 900 just so you can get a Corolla is, well, it’s depressing to me.
The problem is that NHTSA has always under-represented the highway fuel economy and over-represented city. The new figures err more on the side of under-representing city economy, but even more significantly under-represent highway. As an example, my Saab 9-5 Aero got 27mpg highway according to the original NHTSA figures. The new NHTSA stats place it at 25mpg. I and other Aero drivers regularly get about 31, sometimes more.
Admittedly, this also holds true for the new cars as well. But again, there is a threshold that we’re dealing with, and it might be artificially low in some instances.
Money Saved?
People weren’t buying as many cars which is why this program was created. The question is whether they should be out buying cars right now anyway. The premise is that, "Hey! You’ll save up to $4,500 on a new car!" Yay. But did they need to do that anyway?
I can’t find any statistics on the average age of most of these cars, but my guess is that they are all either mostly paid off or nearly paid off. If the vehicles are at 80,000 miles then they are, on average, 5.33 years old. So, there were no monthly payments, and no interest to pay.
From the consumer’s perspective, they are saving 4,040.13 gallons of fuel over the potential lifespan of their old vehicle. At $3.50 per gallon (a roughly estimated average for the next few years) that’s $14,140.45. That equates to a yearly savings of $1,247.407.
But, they also had either few remaining payments, or no payments at all. The average monthly payment for a new car is $581.318.
That’s $6,975.72 that they were probably not paying previously. If we factor in the fuel savings, then they are spending an extra $5,728.32 per year.
I wouldn’t call that frugal.
Random Things
There are a number of other random bits of information about this program:
1. As my friend Alex Moffett pointed out, the majority of these vehicles would have been destroyed anyway. He argues it’s a wash. However, as stated above, the energy used to manufacture the car was not fully expended since the lifecycle was curtailed. Therefore it’s not really a wash.
2. Obviously this is promoting car sales, which some say is good. Honestly, I don’t know if we should be selling as many cars a year as we had been—it seemed a bit extreme to me. I’ve always wondered how dealerships stay in business, but apparently every dealership sells about four or five cars a day.
3. Isn’t this a backwards form of corporate welfare? The money doesn’t really go to the consumer, they just get a lower price on a car they might not have otherwise purchased (hence it being a stimulus plan). From my perspective, this is the government giving the auto manufacturers about $4,2378 dollars per car they built.
4. The cars that are being purchased were already on the lot, so they’ve already been manufactured. This might make things lean a bit toward being a wash as far as production energy input is concerned.
5. As a stimulus plan, it may well stimulate people to buy more appropriate vehicles. It also might make smaller cars more fashionable again, which is good.
Overall
I still end up confused by all of this. The fuel savings are really not that great, and I’m torn on the social side of things. Smaller cars? Good. Disposable cars? Bad. Stimulating business? Good. Corporate welfare? Bad. Destroying a Saab 900? Atrocious.
Do we really need to buy new cars all the time? There are plenty of good used cars out there, and I always tell anyone that’s interested in getting a vehicle to purchase a post-lease car. Let some other schmuck take the depreciation hit for you.
I don’t see it as environmentally sound to waste the resources that went into the production of the vehicle. Really, it’s just waste, and there’s no other way about it.
Maybe I have made up my mind about this program: It’s a stimulus package that, while attempting to get us to buy something more efficient, ultimately still encourages wastefulness and needless spending.
Notes:
1 The rationale behind these figures is: Most vehicles’ warranties or leases end at 60,000 miles. At this point a car is either traded in, taken off lease, or driven less frequently. In other words, this is the point when people consider getting rid of their car—hence why I am using the figure here. Traditionally this car would go onto the used car market. The 250,000 mile range is the point when most cars are no longer worth repairing anymore, whether it is the original owner or not.
2 Admittedly, the new car will continue to run for an additional 80k miles at the improved fuel economy, but this comparison is only looking at whether destroying the old car is a worthwhile approach.
3 The CAFE requirement states that major vehicle manufacturers must produce a total average fuel economy of 27 mpg for nearly all types of passenger vehicles sold. Generally speaking, the manufacturers pad these figures with their passenger cars so that their trucks and SUVs can get away with lowerfuel economy ratings. In other words, their cars get around 30 mpg while the trucks get about 20 mpg. What’s interesting about this from a Cash for Clunkers perspective is that it means people are not necessarily buying the most fuel efficient vehicles available.
4 I am using Ruppert’s figures here because they work easily with the numbers I’m already using. However, there is a discrepancy between Ruppert and Savinar with Savinar stating 10% of lifetime use is in manufacture and Ruppert stating 12%. So, if you believe Savinar, then that makes the new car slightly more efficient. Also, in case you’re curious, Savinar’s figures of a 17 year lifecycle for vehicles matches with my 250,000 mi. lifecycle. Most stats place yearly driving at 15,000 mi., which comes out to 255,000 mi. over the span of 17 years.
5 There is no need to include the energy input for creating the new car because that car will presumably complete its full lifecycle. One might argue that the additional 170,000 miles covered will help make up for the difference. However, both of these vehicles could have been on the road under different owners (and most likely would have been).
6 For the stats on traded-in vehicles, see here. Additionally, since most vehicles are used to carry one person and one bag the majority of time, is all of that engine and suspension truly required? It’s similar to a theory about air conditioning units. Most new houses have oversized A/C units so that they can handle the hottest day or two of the year. But most of the time these units are running significantly under peak efficiency. Do we need a car year ’round that can carry our family when they come to town once at Christmas?
7 170,000 miles difference / 15,000 mile average per year = 11.33 remaining years on the old car. $14,140.45 / 11.33 = $1247.68 savings in fuel per year.
8 According to the FTC the average new car cost is $28,400. Taking out the average CARS voucher of $4,237 leaves $24,163. Using Bankrate’s calculator with a 4 year term and an average new car 7.24% interest rate gives monthly payments of $581.31.
9 Average voucher amount. See here.
Cash for Clunker calculations
I like you analysis, but have two objections:
1. The energy cost of building the clunker should not be amortized over a 250,000 mile life. The fuel was burned before the car even drove the first mile, you don’t unburn the fuel when you throw away the car early. Probably the best comparison on fuel use is to compare the 170,000 miles of the new car with the 170,000 miles of the old car that wasn’t. That leaves you with the tail end of the new car’s life, but I don’t see how you can compare that to anything.
2. The program may inspire the idea that you can switch from inefficient machine to one that’s less inefficient. This concept is transferrable to other areas of life.
That said, I like the rest of the analysis, particularly the objectionable idea that everything is disposable. I hold onto cars for a lot longer than most people (though the car starts to fall apart before I get anywhere near 250,000 miles). People already dispose of cars.
I think the conclusion to be drawn by this program and pretty much every program is that the best we can expect from our politicians is incremental change.
Re: Cash for Clunker calculations
Hi Steve,
1. I’m sorry, I didn’t make it very clear that the ammortization is over the remaining 170,000 miles that are not driven. But what you said is included in the calculations. And I can’t see my end notes in this response window, but I believe I also made your comment regarding the tail end of the new car’s life and how it doesn’t affect the calculation. (In summary, I agree with you, and may have not explained myself well.)
2. That’s an interesting point: “You can switch from an inefficient machine to one that’s less inefficient.” You reminded me of something I want to write about motorcycles. As much as I love them (I’m in Virginia now after riding my Kawasaki from Chicago), they are horribly inefficient vehicles, even though they get better fuel economy.
The more I think about what I wrote, and with your response factored in, the more I realize that we need to concern ourselves with more than just fuel economy as a metric.
Thanks!
Mike
The Rodes Debunking, Pt. 1: The assumptions
STOP! First of all, claiming that a car is capable of running for 250,000 is like saying that a human being is capable of living 113 years. (I use this number in honor of Henry Allingham, the venerable British WWI veteran who died two weeks ago at age 113. Some say he was the world’s oldest man at the time. RIP, Henry.) I challenge you to produce credible data that the median mileage of U.S. vehicles at the time of destruction is higher than, say, 135kM – 145kM.
Sure, a few may chug and smoke on for 250kM with enough TLC and copious repairs, but that is so far from the norm as to be unusable for calculating the economic effects of a program like CARS. Not only will most give up the ghost much sooner, but many will be junked due to accidents—just as not all humans are allowed to live out their natural lives. While that says nothing about the potential for living longer, it all goes into the mortality tables, as should the premature demise of a car. This is especially true as you prepare to allocate a quantifiable residual value (e.g., a less-than-fully-depreciated asset).
Secondly, to suggest that 80kM is statistically representative of clunkers participating in the CARs program is not in the least reasonable. While 80kM may indeed correspond to a threshold below which one is unlikely to trade a car in as a clunker, it amounts to a “best case” for the purposes of your argument.
Even at the 80kM border, not all cars at that mileage level are likely participants–only those worth less than $3,500 – $4,500 are plausible candidates. Why? Because who wants to turn in a car for the rebate amount when it is worth more on the used car market? That effectively excludes higher-end cars–Mercedes, Beamers, Lexus, SAAB–the very cars with the highest likelihood ever of making it to 250kM. Moreover, the true distribution will include cars with 80-, 90-, 100-, 120-, 150-thousand miles and up, I suppose to 250kM. 80k simply can’t be considered typical of anything.
Re: The Rodes Debunking, Pt. 2: The model
Your selection of analytical models (i.e., a bogus lifecycle analysis) is fatally flawed, primarily because you have included events and expenditures that have already passed: Namely, the first 80K of mileage on the clunker has already been driven. That—-and the energy consumed—-is already in the bank; it’s water over the dam. Since the topic is whether of not Cash-For-Clunkers is a sound idea NOW, it’s more appropriate to use something more akin to a decision model: What happens if we implement CARS versus what happens if we don’t.
With that in mind, let me use your assumptions (with which you know I disagree) and replay this a more appropriate way. OK, we now have a clunker with 80kM on it and we have two choices in the decision model: (1) continue driving the clunker for 160k additional miles at 15.8 mpg or (2) retire the clunker and drive a new car 160k miles at 25.3 mpg. (What has happened in the past is altogether irrelevant.)
Under both options, we will have driven 160k miles. Under option #1, we will have consumed 10,127 gallons; under option #2, we will have consumed 6,324 gallons. The net savings is 3,803.
Please bear with me. There is more to come as we expand upon this admitedly incomplete model.
Re: The Rodes Debunking, Pt. 3: Something missing
Notwithstanding my continuing objections to use of 32% as the probable or typical lifecycle proportion, I’ll accept, for the purposes of argument only, your figure of 2,340 gallons as the oil equivalent required to produce a new car. But aren’t you forgetting something?
It’s time for me to add a few assumptions. Let’s say that during the first 80kM of usage, a car seldom requires repairs and uses few new parts. Further, let’s assume that all that changes at the 80kM threshold (this is implied in your reasons for suggesting 80k in the first place) and, thereafter, the typical car needs more and more repairs as time goes on.
This seems quite reasonable to me. To drive a car 250kM, you’ll certainly go through a couple of clutches, perhaps a new engine or two, a tranny, lots of tires, five sets of brake pads, belts, valves…you get the picture. All of these parts and repairs (not to mention the towing fees, driving to and from the repair shop, etc.) take energy.
Because not all of the parts last the full estimated life of the car, it is plain wrong to amortize initial manufacturing energy costs as a straight-line function over the expected life of the car. A higher allocation needs to be attributed to the early years, when all the parts are in operation. Near the end of the life cycle, there is very little residual asset value.
So let’s take a whack at quantifying that. As that clunker ages, you’re going to start spending about a thousand bucks a year to keep it running. For the purposes of the calculation, I’ll drop your annual miles assumption from about 15,000 per year (80k/5+ years) to 12,000. Using ballpark figures, that means you’ll be paying $1,000 per year in repairs for the next 13+ years to reach 250kM.
If these numbers are close, if you keep driving that clunker, the total for parts and repairs will be roughly $13,000 which happens to work out to approximately half the original cost of the clunker. (Will you accept $26K as a reasonable average original purchase price?)
If approximately one third of the manufacturing energy costs were already retired during the clunker’s first 80K, leaving a depreciated asset of 1591 gal equivalent, but it takes half of the original value to maintain the asset, the true residual value cannot be more than about 750 gal. equivalent. (1591 – 1/2 x 2340).
…more to come
Re: The Rodes Debunking, Pt. 4: Social value
Agreed. And it’s hard not to think now about those unemployed designers, engineers, mechanics, et al who want nothing more than to keep working. There is more to this program than gallons and cents.
Re: The Rodes Debunking, Pt. 4: Social value
For anyone reading these, these responses are posting out of order for some reason. This is the response to Pt. 4 of John’s comments. The original response is somewhere down below.
I agree. I want the work of these people to be celebrated, not disposed of. And yes, of course I want them to have jobs. Though, I wish we hadn’t kept propping up our auto industry for so many years and enforcing the notion that we can make crap and everything will be okay.
That’s why I think the concept of “Buy American” is completely un-American. Buy the best product you can.
How many times did GM screw the pooch in the past? And they’ve had ample opportunities to correct themselves. Artificial support of bad products just leads to more failure.
Now, I will say that GM is making some of the best vehicles they’ve made since the late ’60s. But is it enough to make up for the ’80s and ’90s? Does any manufacturer that gave us the Celebrity deserve to exist?
This might seem contrary to my statements about designers and engineers, but it’s not. Their talents were wasted on something like the Celebrity. (Which isn’t like the Aztek–an innovative idea that was just too wacky and poorly thought out.) The Celebrity was simply pure laziness. There’s nothing in that car that compares to the excitement that Honda engineers have for their engines, or the passion that Nippondenso via Toyota puts into their switches, or the cleverness of detail Fiat puts in their cars, or the originality of Saabs.
I truly feel sad about what’s going on with the American auto industry. But what we need is a rebirth, not another resuscitation.
Re: The Rodes Debunking, Pt. 3: Something missing
Okay, this is the response to part 3.
Another good point about, essentially, MTBFs of vehicle parts over the lifecycle.
There’s not much to say, really, except that it’s a good point.
Your guess that $26k as an average original purchase price is pretty darn close. FTC puts it at $28.4k (see end note 8).
The only thing I’d bring up to consider with regard to your overall point here is remanufactured parts, which require less energy input than an OEM or new part.
As an example, all alternators have a core charge. What this means is that if you want to replace your alternator, you pay an extra $60 (usually). You get that core charge back when you return your old dead alternator. The alternator then goes to a shop that repairs it, cleans it up, and puts it out on the market as a reman’d part.
So I think you’re fundamentally right, though the remanufacturing process probably sways your 750 ga. figure up a bit. We could probably come up with a more reasonable number with some effort.
Re: The Rodes Debunking, Pt. 2: The model
I just noticed that the reply structure here is weird. I’m responding to your second response.
I have to disagree that what has happened in the past is fundamentally irrelevant and I think there’s a point where we can agree somewhere. Here’s the premise:
All vehicles require energy input to be built. For that energy input to be completely realized, the vehicle needs to go through its entire lifecycle. Even though you disagree about the lifecycle I state, I think you can agree on the premise. If that lifecycle is cut short, than the remaining balance of energy input is wasted.
That’s the real point here, and I do think it’s an important one. As mentioned earlier, there’s more to think about than just the immediate fuel economy savings.
But, as far as the amount of gas already consumed in driving (“what happened in the past is irrelevant), I think you’re probably right. Unfortunately for your point, if you continue the model out using the same assumptions in Lifecycle Pt. II, don’t we end up with a net fuel savings of 237.13 gallons? (I might have done something wrong.)
As far as the decision model goes, I think it’s a bit too simplistic an approach because you are thinking of it as only one person and a binary choice between two cars. In reality, there are multiple people involved: The clunker first owner, the potential second owner (and third, and fourth) and the efficient car first owner, potential second, etc.
CARS has removed the option of their being another potential owner to complete the lifecycle of the vehicle.
Re: The Rodes Debunking, Pt. 1: The assumptions
Hey John,
Those are some excellent points, and I’ll see what I can figure out about them.
As far as the 250,000 miles goes, end note 4 references a link to a dude named Savinar from some lifecycle institute (please forgive me, but my folks’ internet is deathly slow, so it’s very hard to link out to new things) who says that the average car is kept on the road for 17 years. At an average of 15,000 miles driven per year (according to the Insurance Institute for Safety) that works out to 255,000 miles. So, it’s not really an unreasonable figure.
But, we should also remember that there are plenty of people willing to purchase a beater for pennies on the dollar and keep it running with duct tape and hope.
As far as the 80,000 number goes, that is my own estimate as I haven’t found any figures. It may very well be questionable, and if anyone can find the average number of miles for vehicles turned in that’d be very helpful.
While you’re right that the distribution will sway above 80,000 miles, I think the median is going to be much closer to that figure than to something much higher. But, without solid figures both of us are guessing.
Excellent point about the higher-end cars such as the Mercs, etc., that are more likely to last for a long time, and, about the point that the trade-in value will likely exceed the CARS voucher.
My initial thought is that it’s a non-issue, but I don’t feel confident saying that. There’s something here, but I can’t put my finger on it yet.
Good stuff so far.
Some updated stats
I found some stats that are useful here:
The average trade-in mileage as of June ’09 is 65,883 miles according to Edmunds Auto Observer (http://www.autoobserver.com/2009/07/100000-plus-car-shoppers-waiting-to-buy-edmundscom-calculates.html). Bearing in mind that that’s an average, I think this makes the 80,000 mile estimate I made seem pretty reasonable. Maybe even generous, though it’s not possible to say for certain because the CARS program might introduce different factors not otherwise normally present.
Also, found an article from USA Today (America’s most trusted news source!) stating that “typical passenger cars are now surpassing 150,000 miles, while most pickups, sport-utility vehicles and vans are crossing the 180,000-mile barrier.”
So that’s definitely lower than the 250,000 miles I assert, and I think I’ve found a flaw in my math. Though what’s-his-face says that average ownership lifespan (multiple owners) is 17 years, it doesn’t necessarily mean the car is driven 15k miles each year. Most likely the car is driven fewer and fewer miles as it gets older.
If I get around to it, I’ll revise the math using the trade-in value above, and a 165,000 mile lifecycle.
Re: Some updated stats
Screw it, I just did the math. And the numbers actually turn out worse:
Revised from Lifecycle Pt. I. After thinking about it, I think the 80k mi. trade-in works because this program is encourage trades that otherwise wouldn’t be made. Anyway, here’s the revised text:
165,000 mi. lifecycle fuel use (OF): 10,443.0 ga.
80,000 mi. shortened lifecycle fuel use: 5,063.3 ga.
Now, let’s look at the total lifecycle for the new car:
165,000 mi. lifecycle fuel use: 6,521.7 ga.
Combining those figures together we get a total fuel expenditure of (RF) 8,423.0 ga.
(80,000 mi. clunker fuel (5,063.3) + 170,000 mi. new vehicle use (((165,000mi. – 80,000mi.)/25.3mpg)=3,359.7))
Savings stated in the article (OF-RF): 4,043.13
Revised fuel savings (OF-RF): 2,020.0
I wasn’t expecting that, but I guess it makes sense. You’re driving the car for a shorter period of time, so the total amount of fuel used is less either way.
Re: Some updated stats
It’s getting late so I’ll have to come back to a couple of issues I believe you still aren’t getting about life-cycle cost analysis. For now, some low-hanging fruit…
Generous? Heh, not even close.
Why? Because it IS obvious that different “factors” are “present” and the most obvious is price. Simply stated, the typical trade-in with 65,883 miles is worth MORE than the $3500 – 4500 rebate range. A decent four- or five-year-old car with 65kM is probably worth a minimum of $5,000 unless it’s a low-end, beat-up piece of junk.
Think about it. That’s the POINT of the CARS program: you can trade in a clunker that isn’t worth $4,500 and get $4,500 for it.
Again, your 80kM number cannot be typical. It is the threshold–a number that is closer to the lowest mileage point at which a CARS trade-in makes sense.
I’m reminded now of the tragic case of the statistician who couldn’t swim and drowned while trying to walk across a river with an average depth of 4′.
In the meantime, here’s a puzzle to ponder:
John
Re: Some updated stats
This argument is a complicated one and deserves a new post. So, I’m starting a second post.
As far as the bank goes and sticking with the binary rules of your argument, I would analyze the net operating costs of the first system. I.e., what is the reduction in overhead as a result of using system A (efficient system). If system A shows a net operating value greater than $500m over five years (or so) then dump system B and call the loss a wash.
If the system is truly as efficient as you say, then valuing it at $100m/yr is probably an easy thing to do.
– Mike