Define "Striking Gains"

When it comes to politicians skepticism is a good thing.. a very good thing. In today's online version of "The State" I came across this Business Wire story. The lead paragraph stated: "The Obama administration appealed to the Senate on Monday to bail out the cash for clunkers rebate program, arguing it has already made striking gains in fuel efficiency and is a "wildly popular" economic boost."

So let's figure: The administration is making this claim based on 80,500 transactions logged into their system and that the new vehicles purchased get nearly 10 more miles to the gallon than the vehicles traded in. Aside from the fact that mileage claims for both the new vehicles and the trade-ins are iffy at best, lets assume they are correct. Therefore, old car mpg= 15.4 and new car mpg as stated in the wire service story is 25.4. If you further assume that the cars are driven an average of 12,000 miles per year, what is the annual savings in numbers of gallons of gasoline? Don't you just love math word problems?

The answer is: 24,695,777 which equals 67,660 gallons per day which equals 1,611 barrels per day.

As $1.0 billion divided by 80,500 is roughly $12,400 which is significantly more than the actual rebate amount, let's further assume that the final number of vehicles will be three times the amount reported or 241,500 and that therefore the total annual savings in barrels per day will be 4,800.

The EIA (Energy Information Administration) gives the 2008 consumption of finished motor gasoline in the US as 8,989,000 barrels per day.

This means that the theoretical savings from the $1 billion appropriated for the "Cash for Clunkers" program is 0.054% of current annual consumption. Neat, but hardly striking.

The "average 12,000 miles per year motorist" would save about $735 per year in fuel costs at $2.40 per gallon which is at the lowest end of the "$700 to $1000 range" quoted in the article.

It also means that in aggregate the $1 billion spent would result in reduced aggregate fuel spending per year of about $177.8 million which will reduce gas tax revenues by some amount.

So is the program stimulative to the economy? Probably yes in the very short term, but it is hardly a long-term stimulus. Are the fuel economy strides "striking?" I don't think so but hyperbole is the name of the game in Washington.