University of Wisconsin-Eau Claire Cash For Clunkers: What is it & What Happened? Drew Christensen Jared Farmer Laurelyn Wieseman Eric Jamelske Department of Economics University of Wisconsin-Eau Claire Chippewa Valley Center for Economic Research & Development

University of Wisconsin-Eau Claire Overview  Program Goals  Program Guidelines  Cost of Reducing Carbon Emissions  National Auto Data  WI and Local Auto Data  Conclusion  Questions and Discussion

University of Wisconsin-Eau Claire Program Goals  Get greener cars on the road –reduce carbon emissions.  Boost the auto industry, and by extension, the U.S. economy. Source:

University of Wisconsin-Eau Claire Economics = Incentives

University of Wisconsin-Eau Claire Program Guidelines  Clunker must be less than 25 years old.  Only purchase or 5 year minimum lease of new vehicles.  Clunker must have an average fuel rating of 18 or fewer MPG. –some pick-ups and vans have different requirements.  Clunkers must be registered and insured continuously for the full year preceding trade-in.

University of Wisconsin-Eau Claire Program Guidelines  Clunkers must be in drivable condition.  The program requires the scrapping of clunkers.  The new car must have a suggested retail price of no more than $45,000, and for passenger automobiles, the new vehicle must have an average fuel rating of at least 22 mpg. Source:

University of Wisconsin-Eau Claire Cost of Carbon Reduction  Estimated cost of carbon = $237 to $365 per ton ($300).  Inefficient to pay more than this for carbon reduction.  Average MPG of clunkers= 15.8  Average MPG of new cars = 25.0  Average MPG increase = 9.2 Sources:

University of Wisconsin-Eau Claire Cost of Carbon Reduction  Estimated average miles driven per year = 12,000  Net reduction in gasoline use = 280 gallons per car –12,000 x 9.2  One gallon of gasoline burned = 20 pounds of carbon emissions.  Net reduction of 2.8 tons of carbon per car, per year. –20 x 280 = 5,600 lbs

University of Wisconsin-Eau Claire Cost of Carbon Reduction  Estimated 3-4 years (get new car earlier)  Between 8.4 and 11.2 tons of carbon eliminated –3 x 2.8 or 4 x 2.8  Recall the estimated cost of carbon = $237 to $365 per ton ($300)  Estimated value of carbon reduction = $300 x 8.4 = $2,520 per vehicle  Estimated value of carbon reduction = $300 x 11.2 = $3,360 per vehicle

University of Wisconsin-Eau Claire Cost of Carbon Reduction  Average clunker payout = $4,200  Estimated value of carbon reduction = $300 x 8.4 = $2,520 per vehicle  Estimated value of carbon reduction = $300 x 11.2 = $3,360 per vehicle  $4,200 > $2,520 ($1,680) or $4,200 > $3,360 ($840)  700,000 vehicles replaced  Estimated loss of between $588 Million and $1.2 Billion

University of Wisconsin-Eau Claire Cost of Carbon Reduction  Expensive/inefficient method of reducing carbon emissions –Drive old car longer (economy) –Drive new car more (better mileage) –More efficient new cars of the future –Under-valuing the environment –Value of jobs and increased auto sales  Additional cost of recycling clunkers (time and money)  However, carbon reduction was not the only program goal  Stimulate economy/boost US auto industry

University of Wisconsin-Eau Claire Local Auto Dealers  Clunkers were really Clunkers –Good that they are off the road  New cars were mostly compact/sub-compact/mid-size –Few trucks and small suvs  Could have sold many more cars if we had them –Limited inventory  Had to wait for money from the government –Pay customer and pay auto company, then wait for reimbursement

University of Wisconsin-Eau Claire Eau Claire Ford  74 Clunkers traded in  Focus (40 mpg), Fusion (30 mpg), Escape/Mariner (23 mpg)

University of Wisconsin-Eau Claire Markquart Toyota - Chevrolet  150 Clunkers traded in –80 Toyota and 70 Chevy  Yaris (40 mpg), Corolla (30 mpg), Camry (25 mpg)  Rav 4 (25 mpg)  Prius (50 mpg)  Cobalt (35 mpg), Malibu (30 mpg), Impala (25 mpg)

University of Wisconsin-Eau Claire Ken Vance Automotive  220 Clunkers traded in –100 Honda, 60 Hyundai, 40 Volkswagen, 20 Pontiac  Civic (33 mpg), Accord (30 mpg)  Sonata (33 mpg), Elantra (33 mpg), Accent (33 mpg)  Vibe (33 mpg), G-6 (30 mpg)

University of Wisconsin-Eau Claire Conclusions  Cost benefit analysis of carbon reduction –Expensive, many assumptions  Boost to auto sales –Nationally by automaker –In WI and EC –Generally short lived boost  Local dealers liked the program

University of Wisconsin-Eau Claire Questions?