If you traded in a clunker worth $3500, you got $4500 off for an apparent "savings" of $1000. You could have gotten $3,500 if you had just traded the car in. So you really are $1,000 ahead (depending on your clunker's value) at this point. Not too bad...
However, you WILL have to pay taxes on the $4500 come April 15th (something that no auto dealer will tell you). If you are in the 30% tax bracket, you will pay $1350 on that $4500.
So, rather than save $1000, you will actually pay an extra $350. to the feds. In addition, you traded in a car that was most likely paid for. Now you have 4 or 5 years of payments on a car that you did not need, trading in a "clunker" that was costing you less to run than the payments that you will now be making. Even if you save $1,000. dollars a year in gas due to better mileage, you're still gonna be in the red for five years....hello?
But wait, it gets even better: you also got ripped off by the dealer. For example, the month before the "cash for clunkers" program started, every dealer here in LA was selling the Ford Focus with all the goodies including A/C, auto transmission, power windows, etc for $12,500. because competition was stiff due to poor sales from the stalled economy.
When "cash for clunkers" came along, they stopped discounting them and instead sold them at the list price of $15,500. So, you paid $3000 more than you would have the month before. Honda, Toyota , and Kia played the same list price game that Ford and Chevy did. Now let's do the math...
You traded in a car worth: $3500
You got a discount of: $4500
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Net so far +$1000
But you have to pay: $1350 in taxes on the $4500
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Net so far: -$350 (that's minus...in the red)
And you paid: $3000 more than the car was selling for the month before
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Net Loss: -$3350
We could also add in the additional taxes (sales tax, state tax, dealer prep, etc.) on the extra $3000 that you paid for the car, along with the Five years of interest on the car loan; but let's just stop here while you kick yourself. Suffice it to say that those costs will be much higher than any savings you get from "better mileage".
So who actually made out on the deal? FEDZILLA collected taxes on the car along with taxeson the $4500 they "gave" you. The car dealers made an extra $3000 or more on every car they sold along with the kickbacks from the manufacturers and the loan companies. Manufacturers got to dump lots of cars they could not give away the month before. Lots of good or repairable used cars got taken off the market, crushed and sold as scrap metal to (ready for this?) CHINA ! (Look it up...) And the poor consumer got saddled with even more debt that they cannot afford.
FEDZILLA'S merry men (who promised that people making less than $250,000. would pay "not one red cent more in taxes") will make millions in new tax revenues after convincing Joe Consumer that he was getting $4500 in "free" money from the "government" In fact, Joe was giving away his $3500 car and paying an additional $3350 for the privilege.
If you find errors in this math, please let me know.. .being a simple guy, I'm always willing to learn new things; and if you took "advantage" of the Clunkers deal, I have some swamp land down inFlorida that's for sale...
And remember, these are the same Einsteins who want to take control of our health care system. Hold on to your wallet!!
DelMarVa's Premier Source for News, Opinion, Analysis, and Human Interest Contact Publisher Joe Albero at alberobutzo@wmconnect.com or 410-430-5349
caveat emptor
ReplyDeleteIf it seems too good to be true, it is.
Your tax payment will help the government recover its recovery funds. Thank you!
That's exactly right !!!
ReplyDeleteand lets not forget the car companies are still getting assistance due to the predictable slow sales following the government rebate sale.
Less than 1% of the clunker sales actually made sense.
Japan, Korea and China all thank you very much
When the people fear their government, there is tyranny; when the government fears the people, there is liberty.
ReplyDeleteNever trust a government program, there is always a catch.
Thanks for the analysis. Once again it demonstrates that attempting to manipulate the free market has consequences.
ReplyDeleteHad the dealer's continued their discounting programs, coupled with marketing, in the end everyone wuld have been better served.
The new car dealers are getting exactly what they deserve. They've inflated the prices on vehicles so high that now people have to finance 6-7 years in order to be able to afford the payments. What good is that? In 5 years, most of them will have 100,000 miles or more on them. The engine will be worn, the transmission will be going, if not already gone, hoses, belts, etc. will all be deteriorating. So now, you have 1-2 more years to pay for your CLUNKER that you traded in your old CLUNKER for.
ReplyDeleteNow, you get to go back to the dealer (providing their still in business) and you have 2 choices. Pay them thousands to fix the vehicle or trade that one in and get a new one. By then, the price will probably be so high you'll be financing for 8-9 years!
In another post, someone should lay out the interest you paid over that 6-7 year period too and then MAYBE, just MAYBE some people will wake up.
Nowadays, some cars cost as much as my first house did (by the time you figure in the vehicle costs and interest paid over 5 years)! That's nuts!
Buying a new car has never been a good deal in my short 55 years.
ReplyDeleteHave looked at many web sites, can not find where the 3500 dollar vouchers are taxable income, in fact they all say that there is no federal tax situations with the vouchers. Treated the same as trade-in value of your vehicle.
ReplyDeleteAccording to the official Cash for Clunkers website (www.cars.gov.) the $3500-$4500 credit is not considered income and therefore is NOT taxable.
ReplyDeleteThere is a seperate government rebate program that can give you up to $4,500 on a new car (seperate from the CARS credit). This second rebate program IS taxable as income, but this was stated in the program information and should not have been a surprise to those claiming it. There was even the possibility to combine the CARS $4,500 credit with the other $4,500 rebate for a total $9,000 credit on a new car (with $4,500 of that $9,000 being taxable as income).
ReplyDelete10:52,
ReplyDeleteI respectfully disagree. Every used car I've bought, I did not get my money's worth out if it.
I put 218,000 miles on a Honda Civic I bought new for $15k back in 1992 before trading it in in 2005. That's 6.8 cents per mile. I put very little money into the car, other than routine maintenance (which I did myself).
I recently got rid of my wife's 1999 Toyota Camry. We bought it used with 20,000 miles on it. I had a lot of trouble with it, and the maintenance costs were high. It cost me more than triple what my new Honda cost in cents/mile.
I currently have a 2005 Honda (bought new, replaced the 1992 Honda). I have 102,000 on it today, and I've done nothing to it but change the oil.
These two stories can be repeated with over a dozen cars I've owned -- the ones purchased new were great, the used ones were costly.
It depends on where you buy the "used" vehicle.
ReplyDeleteDon't count on CARFAX either. They are a waste of your money in some cases.