July 31, 2009 / 4:30 PM / 10 years ago

Clunker scheme a tiny boost for U.S. fuel efficiency

NEW YORK (Reuters) - The Obama administration’s popular “cash for clunkers” program may be a boon for the ailing U.S. auto industry, but it will do little on its own to reduce fuel consumption in the world’s biggest energy user.

Cars drive north along the Overseas Highway near Craig Key, Florida September 8, 2008. REUTERS/Eric Thayer

The White House said Friday it is working with lawmakers to extend the program, which pays Americans up to $4,500 to trade in their gas-guzzlers for more fuel efficient cars. The initial $1 billion in funding dried up months earlier than expected due to the scheme’s popularity.

“It has proved to be a highly successful vehicle marketing tool,” said Tim Evans, energy analyst for Citi Futures Perspective in New York. “But you would need a microscope to see the demand impact for gasoline from this program because it involves a relatively small number of vehicles.”

Even if the program is extended, analysts said the scheme will shave little more than 0.05 percent, or between 4,000 and 5,000 barrels per day, off the nation’s daily consumption of 9 million barrels.

The projection assumes some 250,000 “clunkers” with an average 15 miles per gallon efficiency are traded in for vehicles rated at an average 25 mpg, and travel an average 10,000 miles per year.

“Unless they significantly increase it, I don’t think the program as it is right now is big enough to have an impact,” said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

The U.S. Energy Information Administration, the statistical wing of the Department of Energy, said it is not planning to alter its short-term outlook as a result of the program.

“The impact of this is right now overwhelmed by the uncertainties we’re seeing in the economy,” said EIA oil economist Tancred Lidderdale.

U.S. gasoline demand has already contracted for the first time since 1991 as the economic downturn cut industrial and consumer consumption, and experts project the weakness could continue into 2010.

While the program on its own is unlikely to have a discernible effect on U.S. gasoline demand, experts pointed out that it comes amid a broader push toward efficiency.

“It is part of a larger trend toward increased fuel efficiency whether you look at that in terms of CAFE standards or consumer preference,” said Evans. “It is all pointing in the same direction where the U.S. is going to become more efficient in its transportation use of fuel.”

White House spokesman Robert Gibbs said on Friday the Obama administration is confident it can find support to keep the “cash for clunkers” program going. The program was expected to run until September 30.

Legislation that would add $2 billion to the program could move quickly through the U.S. Congress, Michigan Senator Debbie Stabenow said.

Reporting by Richard Valdmanis; Editing by Lisa Shumaker

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