Cash for Clunkers - Continued

Well, it looks like it's official (see here), the Senate has now approved an extension of the Cash for Clunkers bill. The bill was either a huge success or a huge expenditure depending on your point of view. It's a redistribution of wealth from the taxpayers (only 50% of Americans) to those who are in a position to buy a car. Or maybe it's another bailout for car manufacturers.

Some interesting information has come out about the program and actually a lot of details have not come out. But so far, it looks like GM has been the biggest winner with 18.7 percent of new sales. Ford has actually seen a profit. From my previous post, I showed how the increase in sales was short lived, so I hope Ford is investing the profit wisely - it won't last.

Another report I saw said that Ford Explorers were the most traded in vehicle along with older mini-vans. My suspicion is that these owners had been waiting to get rid of their "clunkers".

Remember the program had a dual purpose: #1 to help the auto industry and #2 to increase fuel efficiency. If the Ford Explorers and mini-vans were actually being used and the new cars are taking their place, the second goal will have been reached. I suspect the less fuel efficient cars weren't in heavy use and the newer efficient cars will be used by new drivers, thereby increasing overall fuel usage. (I considered selling a clunker and getting my wife a new car, but I didn't qualify).

Details of the clunker program have been hard to find. The AP reports that the "Obama administration is refusing to release government records on its "cash-for-clunkers" rebate program that would substantiate — or undercut — White House claims of the program's success." So despite promises of "transparency in the people’s White House," things seem to be mostly cloudy. I guess like the stimulus plan, we don't have time to be forthcoming, we have to act now.

My main concern though is the change in the program. The program was initially approved (after a lot of discussion) for $1BILLION or until November 1, which ever came first. We've reached the $1BILLION mark, so the program should be ended. The expansion is going on without any real analysis. Everyone's having a good time, so we just go on spending.

Some of my kids have learned (the hard way) that only the Federal Government can continue spending when they run out of money. In this case, the government doesn't even know how much it has. It's like ignoring the balance column in the checkbook register (do people still use those?)

The new bill should have gone the way of the clunkers -- into the shredder. What do you think?

Cash for clunkers

By now you may have heard that the "Cash for Clunkers" program is broke (or not depending on who you listen to). This post is NOT about that issue. The story on that issue is not yet complete. I may post about that in a week or so when all of the facts are out.

Back about a year ago, I posted an entry about the cost of a gallon of gas (about $4 at the time). A year ago when gas was $4/gallon, I made the bold prediction that "the subject of gas prices will be quiet again." (see here).


Well, let's check into the current situation. People have criticized American automotive companies and said that they focused on trucks and SUV's. During times with high gas prices, this hurts auto sales and, according to critics, helped cause the downfall of GM, Chrysler and Ford. However, prices are down now, around $2.20 or so depending on the day. It now appears that SUV sales are back up (according to Bloomberg) and truck sales are also on the rise (see here). Maybe American car companies were focusing on the right markets after all.

Of course, you have to acknowledge that everyone wants to save gas and go green right? Well, Toyota is having a tough year just like the American companies and has decided to close a Mississippi Prius plant even before it opened (see here). In fact, Motor Trend magazine says Toyota is no long profitable in the US. Seems it's not just American cars that are hurting.


So what does this have to do with "Cash for Clunkers"? The program was initially designed to improve fuel mileage on the highways by encouraging consumers to get rid of older, less fuel efficient cars in favor of newer, more fuel efficient cars. A side benefit is that the ailing automotive market (both domestic and foreign) gets a short-term boost.

The program has been tried in other countries as well. Countries such as Slovakia, France, Germany, Spain and Italy have all unveiled a cash-for-clunkers program at various times in the last year according to this NY Times article. And the program has some history as France had a "similar incentive program ... from 1994 to 1996."

How successful will the program be? According to the same NY Times article, the "plan produced a comparable sales bump initially." Sounds great, right? Well the rest of the sentence goes on to say that the initial sales bump "was followed by a severe drop in 1997 and 1998."

So here's my prediction for 2009 and it will basically echo the prediction from 2008. Americans are less concerned about fuel efficiency than they are about the size of the vehicle (see SUV sales and truck sales above). People will trade in cars under the plan and get minimal improved gas mileage (2 mpg improvement for trucks and 4mpg improvement for cars is the minimum to get the cash). More importantly, these people will take out 4, 5 or 6 year loans to pay for these cars and find that they have trouble making the payments or making their other payments (e.g. mortgage). Next year, we'll all be worse off.

And the country will be no greener than it is today.

Gas prices - Conservation

I hope you had a good fourth of July weekend. Since it fell on a Friday, most people had a three day weekend. Normally, this would lead to a lot of folks on the high-way, but with gas prices so high, predictions were that most people would stay close to home.

I had to work on Sunday afternoon. "Work" in my case was visiting a customer 100 miles away. So I was one of the folks on the road. To my surprise, the roads were not empty. It's not scientific by any means, but there seemed to be as many as I would have thought for a 3day weekend. I noticed a fair number of SUVs (don't recall any hummers), and RVs. Also trucks pulling campers home after a beach or mountain trip.

Which leads me to post on conservation. Of course I had planned this anyway, so it fits.

The idea is real simple, if gas prices are high because of high demand, we can lower demand by using less gas. Which means driving less. As demand drops, gas prices will drop (or stabilize, or increase less). Supply will go up, we'll send less money to the Middle East and our country will be stronger. We'll have more money to spend on other things, like apple pie, motherhood and all in the good ole USofA. What could be better?

If I sound sarcastic, I'm sorry. I don't mean to be. Conservation is truly one way you can make a difference in your personal gas bill. If you're spending $50/week on gas and you cut your driving by 10%, you will save over $250/year. That's real money you can use to make your mortgage payment and avoid foreclosure.

The problem is, I don't think Americans want to conserve. In a recent post I showed that people were as upset about gas prices after Katrina (at $3/gallon) as they are now (at $4/gallon), but a year after Katrina, they were buying SUV's again. My prediction then and now is that we'll see SUV sales back up next summer.

We can mandate conservation. Congress can create laws that force Detroit/Tokyo to have a higher gas mileage on cars. Detroit will scream, Tokyo will be quiet. Over the last 15 years, gas mileage has doubled, there's no reason to believe that won't happen again. Even though I typically am against government interference in business, this is one exception. I think it's a good idea for the government to gently push the automotive industry.

However, new cars with higher mileage won't solve problems quickly. It will take 15 years to take full effect on new cars and longer than that for all the old cars to be off the roads. As pointed out in my post on drilling, starting today is better than not starting.

But there's also another side of conservation. Suppose that we all conserve and prices drop. Once prices drop, people will start driving again and end conservation. Prices will go back up. Conserve again. Prices drop. Can you see a pattern here?

One more oddity, then I'll close. Reports are that people have cut their driving, there is a waiting list for Prius' and other hybrids. For now (maybe not for long), people are actually conserving. The point on this is that $4 gas may actually be accomplishing what conservationists want. And that's not all bad.

As before, if you have comments about this specific post, please put them here. If you have comments on other areas related to gas prices, they are welcome too, but please post them under my initial post on gas prices here.

Gas Prices - Drill ye tarriers, drill

Ok, the title refers to construction of railroads (a very old folk song) and gas prices - two incompatible areas. But I try to be cute with titles.

I wanted to express opinion on the "Drill for oil" movement that has gained a lot of press. I'll also insert some facts, but no links this time. It's too close to a holiday and I don't want to work that hard.

A lot of people are talking about drilling for oil. Drill offshore, drill in ANWR, drill, drill, drill. Opponents are worried about the environment (haven't heard that much this time), worried that it will take 10 years and some are even saying it won't affect supply.

There are (at least) three factors that affect gas prices - Supply of oil, Demand for oil and the future price of oil. The last two items will be discussed later, this post only deals with the supply. The idea behind drilling is that if the supply increases, cost will go down.

Ecological impact of drilling is important. You can look at the Exxon Valdez, the 1969 Santa Barbara oil spill and see the impact. There's no question that this is a bad thing. But in reality, neither of these even made the list of top 10 worst oil spills. (oops, there went a link)

Ecologists aren't complaining this time and in one case I heard of (no links) they are even getting payoffs in California to keep quiet.

Others are saying it will take 10 years to see any results. If you look, you'll find that this number "10 years" or "a decade" is thrown out quite a bit. But the number is just a round number and not based on any facts. Sure, some of it will take 10 years, but some oil would be coming out of the ground very quickly. Jed Clampett, eat your heart out.

The most surprising argument I've heard is that it won't help. The story goes that oil wells in Texas and the North Sea are drying up. Any increase in oil will be offset with decreases other places. Well, maybe this is true (I can't find any links on it), but wouldn't it be better for oil production to be flat rather than drop?

So, I think drilling is good. It will increase (or maintain) supply and hopefully lower prices. The sooner drilling is started, the better.

But who should drill? Well, the people that should drill are the ones best qualified - the oil companies. The government should stay out of it. No incentives to drill, no telling them when, where or how much. The market will determine those things.

Where should we drill? On this, I'm slightly torn. Part of me says the free market will determine this. Stay out of it. But also, I recognize that national security somewhat is impacted by the fact that we get most of our oil from somewhere else. It would be a good thing to encourage us to be more self-sufficient and not dependent on foreign interests.

As before, if you have comments about this specific post, please put them here. If you have comments on other areas related to gas prices, they are welcome too, but please post them under my initial post on gas prices here.

*Update - Immediately after writing this post and publishing, I saw this article about maintenance on North Seas oil fields. This will tighten supply. No word on how long this will last.

Gas prices - Should I trade for better mileage?

This is my second post on gas prices. In the first one, I asked if gas prices are really high. Before you laugh, read here and then you can comment in that post. This post intends to examine if I should trade my old truck for something more fuel efficient.

I drive a 2004 Dodge Dakota SLT. It's not a huge truck and the V8 actually gets a little bit better mileage than the V6 model. But when I drive to Columbia (about 100 miles) I only get about 18mpg. It's very hilly and I just can't do better. I've long said I wanted a Miata (see my mid-life crisis post here), but for fuel efficiency, I've been looking at the Chevy Cobalts. The four door Sport Sedan gets about 32mpg.

So, let's say I trade my truck in for a Cobalt. Makes sense, right? I'd be going from 18 mpg to 32mpg (hopefully). On a normal trip to Columbia, I'd be saving almost 5 gallons of gas every trip. At $4/gallon, that's $20 savings every single trip.

Of course, I couldn't trade even my truck for a Cobalt (and I'd miss my truck). KBB says that the Cobalt is going for $19,850, let's call it $20,000 (nice even number). KBB says it's worth about $8,000. That leaves $12,000 that I have to pay or finance.

Now by saving $20 per trip, it would only take me 600 trips to make this financially attractive. I probably average going about 3 times every two weeks, so the financial trade off is only about 7 years 8 months. MAKES GOOD SENSE, RIGHT?

Of course, one aspect I'm missing here is the fact that if I were going to get a new vehicle anyway, it would make more sense to buy something more fuel efficient. But wait a minute, fuel efficiency isn't the whole story. Clark Howard has an entry on his website (here) with the 10 cheapest cars. You may notice that there's only one hybrid on the list and it's ranked number 10.

So here's the net. The cheapest car to own is the one you already have. Don't trade just for fuel efficiency. When you do trade, look at fuel efficiency, but look at other things too.

Now a comment about comments. I LOVE comments. I'd appreciate reading yours. This topic has generated some off-the-wall sub-topics that I've promised to research. If you have a facet of gas prices you'd like me to look at, please look at my initial post and comment there. I promise, I'll look at it and comment back. Most likely, I'll blog about it later.

If you have a comment specific to this post, please post it here and I'll comment back. Thanks

How much does that gallon of gas cost?

This has been a long time coming. It's the first in my series of posts on gas prices, hopefully the next post won't be so long coming. Please post any ideas/questions about gas prices and I'll do my best to research and address them and give my opinion.

First, I wanted to ask, what does that gallon of gas really cost? My thought was this, we've had high gas prices before, are they really high now? Well the intelligent answer is "DUH! Have you paid $4 for a gallon?"

I'm not that old, but I remember when I first started driving that gasoline was only about 50cents/gallon. So we've gone up 8x. But inflation is a factor also, and I remember the gas prices of the 1980's. In fact, 1981 was (until recently) the highest ever price of gasoline (when adjusted for inflation) In 2008 dollars, 1981 gas was $3.17/gallon, higher than last year's prices, higher than post-Katrina prices. (See this report for details)

But the truth is, 1981 gasoline was still cheaper than what we have today. I recently paid over $4 in Washington DC. But how much is that gas taking out of the average budget? I asked two young couples how much gas they use. Both couples said they average 80-100 gallons/month. Call it 20-25 gallons per week. If we look at national averages, WikiAnswers says the average person drives about 12,000 miles/year, and the average car gets about 24 mpg. That works out to 12 gallons per week per individual. Looks like our couples are right about average.

So the average person is paying about $48 per week for gas now. A year ago, gas was around $3 per gallon, so that's about $12 more per week, $144 per year. Our average couples are getting hit for $288 more than a year ago.

Bankrate.com says that the median family income is about $1137/week, so our average couples (assuming they have median income) are paying about 8% of their income for gas, versus about 6% a year ago. This change of 2% doesn't seem like an awful lot.

While 2% may not seem like a lot, the facts are that gas prices in the 1990's were at all time lows. The last five years have seen continous increases and that's what is driving the current discussion over gas prices. When Katrina hit in 2005, gas prices sky rocketed and everyone talked about ways to save gas. Hybrid vehicles fetched a premium and there were waiting lists for the cars. SUV's stopped selling. (See this article from October 2005). There was even a "What Would Jesus Drive" movement in the country.

But just a year after Katrina, sales of SUV's picked back up. This 2006 article ranked overall fuel economy 21 among features customers looked for, two slots BEHIND cup holders. Yep, cup holders were more important than gas mileage.

So, my prediction is that a year from now (after elections and our new president is installed), the subject of gas prices will be quiet again. Cup holders will rise in importance.

This doesn't change the facts, you still need to do everything you can to reduce your gas consumption or you're going to pay more of your budget for gas.

My next post will discuss selling your current car for a newer, more fuel efficient vehicle.

Gas prices - I need your help

I've promised a couple of people that I would blog about gas prices, but been slow to get 'round tuit'. As I dig into it, it seems a deeper and deeper hole. A black hole, a conundrum, and any other buzz word you want to throw at it.

All that plus, I have to make a living. As much as I'd like to sit here and blog all day, the reality is, my employer expects me to actually work (the nerve of some people).

But, I'm almost at the point where I'm ready to start posting and may even post the first entry later today.

I still need your help. What questions should I address? What rumors are you hearing? What subjects would you like to see addressed?

I promise that any question asked will be answered (at least somewhat) and I'll research all my answers. I will attempt to keep my answers devoid of politics (it does no good to blame the political parties)