Sunday, May 10, 2009

Your Auto Purchase Voucher May Have Been Designed By The UAW If...

So here is the next handout to the UAW. This time it is masquerading as a "Cash for Clunkers" program.

Here is how it works. People who bought vehicles with half-way decent gas mileage give their tax dollars to people who did not buy cars with good mpg who then in turn give them to the auto industry to buy vehicles with slightly better gas mileage.

This is not anything new: you are already paying for other people's housing via Fannie "we need another 19 billion" Mae and Freddie Mac, the FHA, the HUD, all the implicit and explicit taxpayer guarantees, and who knows what else. Just imagine doing away with all of them. Should not be hard to do. But I digress.

The gist of the program is:
Existing car under 22 mpg = $3,500 voucher for 4 mpg+ improvement (laughable) and $4,500 for 10 mpg+ improvement

Light-duty trucks and SUVs under 18 mpg = $3,500 for 2!!!!! mpg + improvement and $4,500 for 5 mpg improvement.

Large-duty trucks under 15 mpg = same for 1 mpg and 2 mpg

Work truck (over 8,000 punds) = $3,500 for 2002 and older; no mileage improvement

Lets think about this for a now you should be saying "this is absurd!"

It is. First off, you are saving a lot of energy and finite resources by not buying a new car. It is as simple as that. Newer models can easily run to 200k miles without major problems.

Second, the required improvements are laughably low. But there is a reason for this.

Finally, there is more than meets the eye. The line-ups of the UAW-owned manufacturers have been, and still are, heavily tilted towards trucks, SUVs and larger trucks; they also dominate the heavy truck segment (think F-250, F-350). By placing laughably lower improvement requirements on the mpg improvement, Congress is in fact handing out this money to the UAW-owned manufacturers. This is even more so clear when you ask yourself how many Honda and Toyota cars get 22 mpg or under. Add to that taxpayer-based financing via GMAC and Chrysler Financial, and heavy loyalty incentives, and you get the picture.

This is a scheme designed to ge the core GM/Ford/Chrysler owners to roll over their older SUVs and trucks into the new models with slightly better mileage.

America, thank you for investing in Chrysler, again.

HT to for the pic

Update: I decided to use the 2009 model year as a proxy for the auto park mpg distribution. So I went to Yahoo Car Finder just to see how many 2009 year mass-market model cars would be eligible for these vouchers. According to the Finder, there are 806 vehicle models available. I define mass-market by MSRP under $25k. So I searched for sedan, price under $25k. There are a grand total of 8 models available. This is under 1% of the vehicles listed. If you increase the max price to $35k, you get 27 models. This is under 3.5%. 29 models if expanded to coupe/hatchback/sedan/wagon.

This proxy supports my view that this program is designed simply to sell new SUVs and trucks, and NOT designed for a real average mpg improvement. If they really wanted to improve average gas mileage, they should have just raised gas taxes. As simple as that.

There are about 240 mm passenger vehicles in the US. This program is supposed to last one year, and support the purchase of 1 mm vehicles. So the taxpayer is funding $4 bn to change less than 0.5% of the auto park to what would probably be an average improvement of 3 mpg for that 0.5%. And the replaced vehicles stay around in the market.

Another great job by Congress.

Late update: so the program required that the cars be junked (hm, if we break all windows and replace them, are we better off?) and the big winner is... Toyota Corolla. Made in Canada or Japan. Great work, folks. And Toyota is cutting back while GM is ramping up production. Someone will be very wrong, and my bet is not on Toyota.

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