On November 4, a USA today headline blared "AP: AP: 'Cash for clunkers' = cash for big new pickups"
This kind of story has been indicative of the reporting on Cash for Clunkers-- unrealistically negative.
The reason given by Michael Winter of USA Today?
"AP reports that for 8,200 deals — the most common — buyers traded in their old Ford 150 pickups for new Ford 150 pickups. Fuel economy for the new trucks is just 1 to 3 mpg better than the clunkers — less than 20 mpg.
It continues..
Right on Ford's bumper were big old Chevy and Dodge pickups that were traded in for big new Silverados and Rams.
Overall, more than 95,000 new vehicles — about one in seven — got less than 20 mpg. "
What the AP/USA Today failed to report? 1 in 7 (buried within the story) is just 14%. That means that 86% of new vehicles got more than 20 mpg. Yet the USA Today's headline suggests the program should be judged based on the 14%, not the 86%. Let's follow AP/USA Today's logic here:
- 86% of Americans are being told to get the flu shot. Does that mean Americans are not being told to get it?
- 86% of Japanese High Schoolers Read Cell Phone Novels. Does that mean that Japanese Higher Schoolers = Non-Cell Phone Novel Readers?
- Fossil fuels supply 86% of the world's energy. Does that mean the world's energy = 'Non fossil fuel based'?
The AP/USA Today would think so. What else did they fail to mention?
What the previous mileage of those vehicles that got less than 20 mpg was. Even among those 14%, the program is still an enormous benefit if, for example, someone traded in a vehicle making 14 mpg for one making 19 mpg. If this 'clunker' vehicle would have been driven another 50,000 miles, that is an extra 940 gallons saved. At $3 a gallon, that is $2,820, almost the cost of the rebate itself.
The Ford F-150s and Chevy and Dodge pickups that the AP highlights? They represent only 16,939 sales, out of a total of 677,081 clunker trade-ins processed through October 16. That's about 2.5%. That means 97.5% of the vehicles traded in were not Ford F-150s, Escapes, or Chevy Silverados. Yet the AP highlights these as if they were the whole program. Why?
The Ford F-150s? Only 8,248 such trade-ins, representing 1.2% of all trade-ins. 98.8% of trade-ins were not Ford F-150s. Yet the AP goes so far as to point out how many times it was likely to be bought by the Prius (never mind the fact that someone who already owns a Ford F-150 is more likely to be someone who wants another similar vehicle, so there is massive selection bias going on here), what the F-150s mileage was, and their mpg improvement. The 1.2% was highlighted in the first sentence of the story to justify the byline; the 98.8% was ignored. This is fundamentally misleading and disingenuous.
The story also highlighted $562,500 worth of deals where "new cars and trucks that got worse mileage than the trade-ins," emphasizing that "taxpayers subsidized" them. Never mind that buried deeper inside the story was the fact that 'government said it is investigating those reports and said in some cases they were probably entered incorrectly by dealers or based on outdated fuel economy figures.' That is not mentioned.
And what is $562k out of $3 billion? .019%. So 99.981% of the time, the new cars had better mileage than the old ones, even before factoring in data entry mistakes. I don't know about you, but if there is any data entry professional out there who only makes mistakes .019% of the time, you are probably in the top .019% of your profession! Yet the AP/USA Today treats this as some huge part of the story.
Thank god the government is keeping tabs on these things and investigating them, by the way! Had the media and mortgage lenders been as scrutinous in 2003-2007 of loans the housing market, we might not be in this mess today.
What if the AP/USA Today had cherry picked the best stories, where the cars traded in had the worst mileage, the new ones had the best, and treated them as emblematic of all of Cash for Clunkers? Would not Fox News, the conservative media, and everyone else out there go cray with rage? There goes the liberal media again! they'd say. And yet, I've heard nothing when they do this.
And what I've written above is just the first unfair attack on Cash for Clunkers. Mainly the critics argued that it was just pulling forward demand and that sales would fall for months. But after a dip in September, October was the best non-cash for clunkers sales month of the year. A widely publicized report by Edmunds.com has already underestimated October sales by a 60,000 annual rate (they forecast 10.40 on Oct. 28, actual was 10.46). But more importantly, the whole notion that only the new sales that would not have happened this year count is patently absurd. It puts a car sold on December 31, 2009 as part of the benefit for Cash for Clunkers, but a car sold on January 1, 2010 was not a part of the benefit!
In addition to shortcomings pointed out by the White House, the benefit of Cash for Clunkers spreads from consumers to dealers to auto workers to the economy as a whole for lower import demand, to the environment. In no way was its goal solely to pull forward sales from early 2010 to summer 2009, although slightly smoother demand may have helped auto companies avoid layoffs.
Further, what these critics fail to understand is that car sales today are artificially depressed. As Calculated Risk/EconBrowser has pointed out, at a 9-10 million auto sales rate, the cars on the road in America today would have to last an average of 27 years just to maintain at the current level, and that is very unrealistic to have continued. Cash for Clunkers just helped to restore the natural level of demand.
No matter whether you support or oppose Cash for Clunkers, the critics in the media of this highly successful program (which they did not expect to be successul) cherry pick data, distort the facts, mislead their audience, and are being disproven by sales figures. It is time our government got credit for doing something right for once.
So...are there any real, non cherry-picked facts in this AP/USA Today story? Oh it looks like there is one after all...
The data show the overall average fuel economy for the clunker trade-ins was 15.8 mpg combined rating, and the average for new vehicles purchased was 24.9 mpg.
So 677,000 trade-ins for an average mileage improvement of 9.1 miles per gallon. Since then, the number of trade-ins has been revised up to nearly 690,000. Even taking a conservative estimate that these 'clunkers' would have been driven just another 10,000 miles (i.e., less than a year) before being traded in for another car that got 9.1 more miles per gallon, the savings amount to 231 gallons per car; $577 per car at $2.50 a gallon, and $399 million overall.
So the government spent $3 billion, and dealers and consumers collectively got $3 billion in transfer payments, some of which went towards jobs and increased working hours for Americans in the auto industry, and collectively, the United States will save $399 million in imported oil expenses. For $3 billion, the return was 13%. I'd say that's a pretty good investment.
UPDATE: I adjusted the gas price assumption in the above paragraph.