Today was the Department of Transportation's official kickoff for the "cash for clunkers" program, so that means Secretary Ray LaHood had to make the media rounds talking about how the program will change driving as we know it. Here's his appearance on CNBC with Erin Burnett. (In case you're not familiar with the idea, basically you trade in your old car when you buy a new one that gets slightly better gas mileage, and the government gives you a $3,500 ot $4,500 voucher to sweeten the deal.)
[See 10 Cars Detroit Should Copy.]
LaHood says that cash-for-clunkers could get 250,000 new cars on the road. But there are at least two good reasons to be highly skeptical of that number, and the broader implications for the Obama administration's policies:
1. As LaHood says, that 250,000 only comes about if the entire program is exhausted by Americans rushing out to trade in their cars. But such excitement seems unlikely when the program only covers cars under $4,500 in value. You can likely sell your car and buy a used car for less than what you'd spend using the cash-for-clunkers voucher on a brand-new car. As John Wolkonowicz of IHS Global Insight told me, "If I have a car that's worth less than $3,500 or $4,500, I probably can't afford a new car anyway."
LaHood himself says that car manufacturers are putting more rebates in place on top of the new vouchers--thus pushing down the effective price of new cars. But that also means prices in the used car market will likely decline, making it even less clear why these vouchers are the "extraordinary opportunity" that LaHood says they are.
2. So maybe the car won't revitalize the American auto market, but it will do some good for the environment, right? LaHood argues in that CNBC interview that cash-for-clunkers goes hand-in-hand with the Obama administration's efforts to encourage mass transit.
But the catch-22 for LaHood is that the more he's right about the first prediction--that tons of consumers will bite for the program--the more he's wrong about the second. The process of building a new car has the same cost in carbon emissions as driving for a year, experts say. So one way to look at LaHood's number is as 250,000 years of carbon emissions that wouldn't otherwise occur.
But wouldn't staying in your clunker still be worse? Not if the car is near the end of its life anyway. Lee Schipper of the University of California at Berkeley told me, "A clunker in its last two years [of life] might only go 3,000 miles a year. You're only eliminating 10 percent of its life [by getting rid of it]."
Also, consider how this changes the economic rationale for somebody who owns a clunker at the end of its life. Your car dying on you--and the ensuing replacement costs--is one of the few things that might make you ride public transportation instead of driving, if you're low on cash. So if promoting mass transit is what the Obama administration is all about, why would they want to make it easier for you to buy a car? Sure, it might be a more fuel-efficient car than your old one, but maybe you weren't going to buy a car at all.
[Learn more about qualifying for your Cash For Clunkers rebate.]