Tuesday, February 16, 2010

A Lesson in Oilfield Math: The Real Cost of Cash for Clunkers

Everyone is looking for cost-saving methods these days, so imagine my dismay when someone ran the numbers on the "Cash for Clunkers" program.

The numbers may not be exact, but the idea is worth pondering:

"A clunker that travels 12,000 miles a year at 15mpg uses 800 gallons of gas per year. A vehicle that travels 12,000 miles a year at 25mpg uses 480 gallons of gas per year. So, the average 'Cash for Clunkers' transaction reduce US gasoline consumption by 320 gallons per year. Sounds good so far, but wait, there's more.

The CFC program claims that 700,000 vehicles saved 224 million gallons of oil. This roughly equates to a little over 5 million barrels of oil.

The US consumes 5 million barrels of oil in 5 hours. This costs $350 million at $70 per barrel.

Conclusion: The government spent $3 BILLION in tax dollars (citizen's money) to save $350 MILLION. We spent $8.57 for every dollar we saved."

In the business world, we call this a NET LOSS.

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