Saturday, August 1, 2009

Cash for Clunkers

From an environmental perspective I think that the Cash for Clunkers program's impact is going to be pretty negligible. To calculate the true environmental contribution you have to consider the following. The overall trend of car purchases has been toward more fuel efficient vehicles. Which recent record gas prices on everyone’s mind most people will factor in gas prices already into their purchasing decision. Additionally newer cars are more fuel efficient on average. So the added value of the program is the difference between the additional fuel efficiency between the car a customer would have purchased and a car that they purchased through cash for clunkers. However since the purchases will be made sooner than later, we will see the improved fuel efficiency sooner.

About 750K new cars could be purchased under this program compared to annual US sales of over 10 million per year. If we assume that as a group these vehicles will be 20% more efficient than cars that would have been purchased without the program, we can see that the program’s environmental impact is not that large compared to what the status quo would have been.

Perhaps there is a peripheral effect of introducing fuel efficient cars to groups that would have never considered them otherwise as well affecting their lifetime purchasing habits to at least not have a negative bias towards more fuel efficient, (smaller, non American) vehicles.