In More Gas for Washington, Arnold Kling presents some quick back-of-the-envelope calculations to demonstrate the economics of super-fuel-efficient (500 mpg) cars:
A car’s annual fuel cost is ($/gallon) times (gallons/mile) times miles. So, if we drive a car 10,000 miles a year and gas costs $2.50 per gallon, then our annual fuel cost is $25,000 times the gallons per mile. If gallons/mile goes from .04 yesterday (25 miles to the gallon) to .002 ‘right now,’ our fuel bill goes from $1000 to $50 (assuming we do not increase our driving). Converting these annual savings to a present value by multiplying by 10 (corresponding to an interest rate of roughly 10 percent), we would pay $9,500 more for a car that gets 500 miles to a gallon than for a car that gets 25 miles to the gallon.The auto companies sell 15 million vehicles a year. If they could get $10,000 more per car, that would be $150 billion more per year in revenue. If the economics of the fuel-efficient car do not work for $150 billion per year, then a $12 billion subsidy spread over several years is not going to make much difference.
Meanwhile, sending more money to Washington is like sending more coal to Newcastle.