Friday, November 06, 2009

Cash For Clunker Math - Buyers LOSE $ Under Program

If you traded in a clunker worth $3500, you get $4500 off for an apparent
"savings" of $1000. However, you 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 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, that was costing you
less to run than the payments that you will now be making.

But wait, it gets even better: You also got ripped off by the dealer. For
example, 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 the
month before the "cash for Clunkers" program started.

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).

So lets do the final tally here:

You traded in a car worth:$3500

You got a discount of: $4500

---------Net so far +$1000


But you have to pay:

$1350 in taxes on the $4500

Net so far: -$350


And you paid:

$3000 more than the car was selling for the month before

Net -$3350


We could also add in the additional taxes (sales Tax, state tax, etc.) on the
extra $3000 that you paid for the car, along with the 5 years of interest on
the car loan but lets just stop here.

So who actually made out on the deal? The feds collected taxes on the car
along with taxes on 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.

The manufacturers got to dump lots of cars they could not give away the month
before. And the poor stupid consumer got saddled with even more debt that
they cannot afford.

Obama and his band of merry men convinced Joe Consumer that he was getting
$4500 in "free" money from the government when in fact Joe was giving away
his $3500 car and paying an additional $3350 for the privilege.

Aren't we lucky that the government is taking care of us so effectively!?!

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