Alternative Fuel Clunkers....

I'm going to go back and tell a story from 10 years ago....

May, 1999.
I had just upgraded to my first Captain's job, which, of course brought me a bigger paycheck than I had been getting as a First Officer. Also, I had been driving a 1983 GMC S-15, which looked a lot like this....



...except that it was a 4WD, and I had added a shell to the back. With the youngest of our three kids then almost 10 years old, I could only squeeze three of the five of us in the cab, and the motor was exceptionally underpowered. At that point, it was not much good for anything beyond an airport car, and even then, it wasn't that good. The air conditioner was shot and it didn't go into 4WD anymore.

It was time to upgrade my ride.

About this same time, Arizona was launching into an experiment with alternative fuels. The idea was to simultaneously clean the environment and wean some of the Arizona vehicles off foreign oil. But how to do this became the question.

Enter Jeff Groscost and the Alt Fuels industry.

Their idea was to both stimulate the demand for these vehicles and alt fuels as well as the supply of both.

To generate an instantaneous demand, here is my memory of what they proposed....

• The idea was to have consumers buy a vehicle, and add an alternative fuel conversion to that. The state would then, depending on the emissions of the conversion, rebate between 30 and 50% of the total cost of the vehicle and the altfuel system.
• Also, the cost of the altfuel system would be applied as a credit to one's income taxes.
• There would be no state sales tax on the purchase.
• Rather than being taxed as a function of the vehicle's value, an altfuel vehicle would have a flat VLT of $5 a year.
• And you could drive around in the HOV lanes all day all by yourself.

In my case, I paid sticker price for my truck, a 2000 Chevy Silverado Z71 (more on this later)....$33,000 as I remember. To that I added a $8000 Compressed Natural Gas conversion, making the vehicle total $41,000.

But, if memory serves, I got back $17,000, making my effective cost $24,000 for what was then one of Chevy's top of the line trucks.

On the supply side, there were plans for similar stimuli. They had envisioned that gas stations would, with these incentives, install the additional plumbing and tanks to make supplies of alternative fuels (primarily CNG and propane) available to meet this new increased demand.

This was a great deal.

The problem being....I wasn't the only one who thought so.

The Legislature, when they proposed this program, thought that they'd have to rebate $3-4 million to fund this whole thing. When the governor's office looked at it, and she eventually signed it, they believed it was going to be more like $10 million.

They had to put the brakes on the program when it was clear that it was going to go past $600 million.

They over-stimulated demand and it was going to bankrupt the state. And here are a couple of related anecdotes from memory....

• One lady bought a $17,000 Ford Fiesta. POS. To that she added a $33,000 fully electric conversion for the thing, in effect giving her a $50, 000 Ford Fiesta. One would think only a crazy person would buy such a thing. But, the electric conversion qualified her for a 50% rebate, plus the credit on her income taxes for the conversion cost. Fifty percent of her $50k gives her $25k back in her pocket, plus she got a credit for $33k. New car, plus cash back. Niiice.
  
• One of the homebuilders on the Phoenix west side ordered 600 trucks under this program. He justified this by saying that he had a constant need for construction trucks. I happen to believe he was planning to put a new altfuel truck in the driveway of every house he sold, but that's just conjecture. In any event, 600 trucks is a large order.
  

Anyway, there was a huge, huge demand for getting in on this stimulus. On the weekend I bought my truck, there were no Chevy dealers with any Suburbans in the Phoenix metro area. In the fifth largest city in America, every dealer had sold every Suburban. Anybody who was anybody was trying to get in on this program. I was very lucky to find the truck that I ended up with. And when I did find my truck, the only way to get it was to pay sticker price for it. The dealers, knowing the rebate I'd be collecting, were in no mind to negotiate down on any vehicle on which I might put one of these conversions.

Some of this was due to the over stimulus, but another part of this was due to, frankly, fraud.

My neighbors--nice people, really--were one of those who bought a Suburban on this same weekend. And the CNG conversion they installed included a 3 gallon CNG tank.

Here's the thing about CNG....the amount you can get into the tank is inversely proportional to the temperature, and you can never fill the tank completely. I have a 9 gallon tank, and in the winter I can--maybe--get 7 gallons into it. In the summer, its less...usually a little over 6 gallons. And given the 15-17 mpg that I get with the fuel, this means that I have a range of 100-110 miles. Its not enough to start out on some great trip with, but certainly enough for around town. With a 3 gallon tank, you wouldn't have enough CNG to get home, much less anywhere else. There is a CNG fill station at the airport, and I generally fill up before I drive home.

And I haven't given up my unleaded system....it is a bi-fuel truck. So when I can't get to a CNG station, any old unleaded station will do.

They had similarly generous plans for the supply side. My initial plan was to buy a home fill station. The natural gas which is compressed to become CNG is the same stuff that is delivered to your house. When it comes to your regulator, it is delivered at 30 psi or so. You really wouldn't want a leaking gas line at 30 psi in your house, so in addition to acting as a meter for your gas, the regulator serves to step that pressure down before it gets to your house. The gas to your house is delivered at 6-8 psi.

But my truck fills at 3600 psi. A home fill unit would essentially be a boost pump. It might take all night to fill up the tank, but who cares, really? The home fill unit would run another $6k or so, but again, they had plans to rebate most of this in a similar way to the demand stimuli.

So, why did I write all this?

I like my truck. Really. I do.

I like the CNG. I use it all the time. Its cheaper, performs about as well as unleaded, and I have the advantage of using the HOV lanes while emitting less pollutants.

But, I wouldn't do it again.

Here is what I've learned out of all this.....

Anytime a government has to offer an incentive for folks to do what they otherwise would not choose to do, then, in effect, what they're doing is saying that some folks will be taxed for the benefit of others. When the .gov gets in the business of incentivizing private decisions, they don't know what they're doing. A retailer knows how much he can discount his products. He knows that when he's planning a sale, he had better have a greater supply of whatever he's discounting. He knows that if his discount is too generous, he'll go broke, run out of supply or both.

The taxpayers of Arizona bought me a third of my truck. Nice if you can get it, but the state can't stay in business this way.

So, why is this relevant today?

Here's why....The Cash for Clunkers program is going broke. They overstimulated. They're having to add money to keep a program meant to last until October make it last beyond its first week.

In short, the fed.gov is doing today what the Arizona state.gov did 10 years ago. For their own reasons, they believe they're smarter than the Invisible Hand, and it isn't working.

Again.