Why 'cash for clunkers' makes sense
Rick Larrick, a professor of management at Duke's Fuqua School of Business, provides an interesting (and more accurate) perspective on assessing gas mileage in motor vehicles, particularly in light of the government's cash-for-clunkers program -- and the criticism, leveled by some leading Democrats in the Senate, that it rewarded gains in fuel efficiency too small to make a difference.
Larrick wrote in reaction to my recent column on fuel efficiency and the need for consumers to make that their priority when they shop for new vehicles.
I agree with you about mpg, and wanted to point out that mpg math disguises the real inefficiency of 13 mpg Suvs. It’s worse than you think. The better way to look at fuel efficiency is with gas consumption, such as gallons per 100 miles. Here’s some comparisons:
10 mpg = 10 gallons per 100 miles
11 mpg = 9 gallons
12.5 mpg = 8 gallons
14 mpg = 7 gallons
16.5 mpg = 6 gallons
20 mpg = 5 gallons
25 mpg = 4 gallons
33 mpg = 3 gallons
50 mpg = 2 gallons
Getting one 14 mpg car off the road in favor of a 25 mpg car saves more gas (3 gallons per 100 miles) than any possible replacement for a 33 mpg vehicle.
Here’s an interesting puzzle. Imagine two people with cars that average 14 mpg. Imagine one is going to upgrade to a more efficient car. How big does the mpg improvement need to be so that the new average for the two people is 25 mpg? Intuitively, it seems like trading in one 14 mpg car for one that’s about 36 or so should do it. But a 14 mpg and 36 mpg car use a total of roughly 7+3=10 gallons per 100 miles, which is an average of 5 gphm per vehicle. That yields an average mpg of 100/5 = 20 mpg. The “gallons per 100 miles” math shows that even improving one car in this example to 50 mpg does not yield a final average at 25 mpg. If you have a 14 mpg car and a 50 mpg car, they use 7+2=9 gallons per 100 miles, which is an average of 4.5 gphm, and an average mpg of 100/4.5 = 22 mpg!
The moral of the story: The urgency for the country is in removing the most inefficient cars. The puzzle about the mpg improvement shows that even a 50 mpg car can do little to offset the gas consumption of a 14 mpg car. A 50 mpg car and a 14 mpg car still average out close to 22 mpg. The national policy implication: Improving the low mpg cars by even a seemingly small amount is where the main gas savings are possible.
I published a paper in Science a year showing that mpg causes illusions (because gas consumption and gas savings are not a one-to-one function of mpg); gallons per hundred miles fixes these illusions.
I also have two non-commercial websites where I make the case for thinking in terms of gallons per 100 miles (recently adopted by USA Today and by Popular Mechanics):
Rick Larrick
Professor of Management
Duke University
Research webpage: http://faculty.fuqua.duke.edu/~larrick/bio/LISTEN TO MY INTERVIEW WITH LARRICK ON MIDDAY JULY 27







Comments
Interesting that gas mileage is never translated into mpg per person - 4 individuals on 50 mpg motorcycles = 1- 12.5 SUV, and that SUV with 1 person going to work may carry 4-5 or more on week ends or eve and may serve other purposes such as pulling a trailer or large items. Its so easy to curse the moron driving to work when we don,t know the facts, then again I don,t believe large families are considered "earth friendly"
Posted by: Jim | July 18, 2009 9:33 AM
These scholarly analyses always amaze me. Let's look at the opposite pole. Reduce gasoline consumption by buying an econobox. Tax revenues, both State and Federal drop. Shortfall of revenue to finance the lib and dum projects? No problem, increase the taxes on gasoline so there is NO NET SAVINGS TO THE CONSUMER, just another increase in taxes. I assume Dr. Larrick rides a bike??
Posted by: Norris | July 18, 2009 9:57 AM
Let me guess, Norris... do you drive a Hummer? I don't see anything in Dr. Larrick's letter that discusses the financial benefits of increasing fuel efficiency in vehicles. There are other benefits to increasing fuel efficiency- we'll have less greenhouse gas emissions (which is probably a hoax in your alternate reality), and we won't be at the mercy of OPEC. Also, have you heard of "Peak Oil"? Oil isn't an infinite resource, you know.
Posted by: MCG | July 18, 2009 12:44 PM
I'm again surprised to read an article about fuel use and pollution that seems to assume that doesn't factor in miles driven. I have an old SUV that burns less gas and pollutes less than most hybrids, because I hardly ever drive it. I could replace it with the most fuel-efficient car model on earth, and it would make almost no difference. All of the improvements to fuel economy and emissions that have been made in the history of the car have been more than offset by people driving more miles. Instead of thinking we can buy our way out of our problems by buying new cars, we could just get out and walk, share a ride (as commenter Jim mentions) ride a bike, take the bus, or move closer to where our work and other activities are.
Posted by: Joe | July 18, 2009 3:04 PM
"...the need for consumers to make that their priority when they shop for new vehicles."
What a bunch of complete and utter baloney. I will make whatever I need or want to be my priority my priority.
If I want a nice big comfortable car that gets 15 mpg, I'll get a big SUV and that's my priority. If I want a minivan to carry my family around town and take all our stuff on vacation, that's my priority. If I need a pickup for my business, that's my priority.
And if I want to signal that I'm one of the in crowd and better than everyone else, I'll get a Prius because that's my priority.
How on Earth can some professor of management (?!?) from 400 miles away possibly know what I need to make a priority?
There's far too much of people telling other people what they need to do. It's a sickening development and will lead us down an ugly road.
(And to beat you to the punch, MCG, I don't drive a Hummer. I have a nice mid-sized sedan that gets 32 mpg. But anyone who wants to drive a Hummer, for any reason, should have at it.)
Posted by: jjjackson | July 18, 2009 4:52 PM
I don't really want to be on jjjackson's side here, but I sort of am. To expand on my earlier point, if people can drive more miles for the same money, there's a good chance they will. That's always been the case in the past. The recent spike in gas prices caused an unprecedented increase in demand for public transportation and other modes, and the changes in people's habits persisted when gas prices went back down. And to question Prof. Larrick's argument, there seems to be an assumption that cars with poor gas milage are driven at least as far as cars with good gas milage. My unscientific observations suggest that people who make fuel economy a big part of their car purchasing decision do so because they drive a lot of miles.
Posted by: Joe | July 18, 2009 8:00 PM
No matter what mileage our vehicles are reported to provide, driving style can improve it. It's impractical to think that everyone can downsize their car immediately, but we can all drive in ways that save gas, and pollute less.
A key way is to be aware of when you are idling when you could turn your car off. I attended an eco driving workshop at this summer's Midwest Renewable Energy Fair and have a lot of info to share on when to turn off your car, and how much gas you can save.
Check it out at http://digginginthedriftless.wordpress.com/2009/07/03/idle-thoughts-turn-the-damned-thing-off/
It's amazing how much you can save that way.
Denise Thornton
http://digginginthedriftless.wordpress.com
Posted by: Denise Thornton | July 19, 2009 12:44 PM
You donot need actual vouchers or coupons to partipate in this program. All dealers are required and government will
reimburse the fees for the clunkers
Jimhenry
Posted by: jimhenry | July 20, 2009 6:17 AM
Cash for clunkers is not about improving the environment, it's about boosting new car sales. It won't accomplish that because people can't afford to buy new cars.
Posted by: karenc | July 21, 2009 10:27 AM
You can either Lease or buy a new car to use the cash for clunkers program. It has to be new vehicles and not used ones.
Posted by: jwhenry | July 22, 2009 1:43 AM
Why are we rushing to pass this bill to provide money for the CARS program. This reminds me of the way the first TARP funds were rush through only to be misused. There is time to think this through and see the consequences of our actions.
2010 Jeep Commander 4WD
2008 Land Rover Range Rover Sport
2008 Jeep Commander 2WD
2005 Chevrolet Van 15/25 2WD Conversion
2002 Jeep Grand Cherokee 2WD
Approved! According to CARS.gov these vehicles May qualify for cash for clunkers. Although I doubt someone would trade in a 2010 or 2008 for 4500 dollars. However this shows the folly of this program. They can scrap a 1 year old car. Someone is likely scrap a perfectly usable 2005 Chevrolet Van 15/25 2WD Conversion with high miles or cosmetic imperfections or maybe broken Air Conditioning and radio. There are people and business that cannot afford a new car and could otherwise use some of these vehicle that are being scrapped.
CARS program is in fact very wasteful and therefore is not an benefit to the environment. We must also consider the fact that to manufacture a car or truck creates pollution and toxic waste.
1983 8 cylinder Jeep
1980 Ford thunderbird
1979 Dodge Aspen
Denied! Vehicles older than 25 years are not eligible for CARS rebate. These older cars pollute more, use more gas and are less safe. They have no airbags. Does that make sense?
If the new vehicle has a combined fuel economy that is at least 4, but less than 10, miles per gallon higher than the traded-in vehicle, the credit is $3,500. If the new vehicle has a combined fuel economy value that is at least 10 miles per gallon higher than the traded-in vehicle, the credit is $4,500. This means that 2002 Jeep Grand Cherokee 2WD which gets 15 mpg will get a credit if the replacement car gets only 19 mpg.!
The program should require a much higher fuel economy rating.
The program should merely be a tax credit for buying an ultra fuel efficient or electric vehicle.
Instead of trashing the whole car, Why not refurbish it with a more efficient engine. There are also companies that can convert a gasoline powered car to electric. This would make sense!
Some are admitting that this program is merely an economic stimulus plan. I and many others don’t like it. It is going to increase my taxes somehow. It is as if I am giving the money to other people to buy a new car. Even worse is that it is rewarding those who wasted gasoline all these years because they did not care about fuel economy when they bought their car. People who were responsible and bought a fuel efficient vehicle which, for other mechanical reasons, may now be a clunker, have no incentive to buy a new vehicle. However that is far from my primary concern
In the early 1930s during the great depression . Millions lost their jobs and while many went hungry, farmers poured large quantities of milk into ditches and government officials forced farmers to kill millions of farm animals. The economic system stipulated that farm products and other commodities be sold for a profit. Milk, meat , and grain had great value to the poor . However when food could not be sold profitably it was deemed worthless and were disposed of. This seems to be what the CARS program is all about! We are eliminating the supply of usable vehicles to make a demand for new cars at a profitable (higher) price. The rest is just environmental green-washing. This is both wrong and short sighted. It is setting a bad morale example and is further perpetuating the throw-away society that has evolved around us. It is bound to fail in the end and cause more harm than good.
What happened to the green economy we were promised during the election? These billions of dollars can be used for solar panels on homes instead.
Posted by: Joe | August 4, 2009 10:17 PM