Cash for Clunkers Hurting the Lower Income
- 11-04-2009, 12:46 PM
Cash for Clunkers Hurting the Lower Income
Is Obama's 'Cash for Clunkers' program to blame for the dramatic rise in used-car prices?
The auto world was cheered by yesterday's news that new-car demand continues to increase, with several major automakers reporting higher sales compared to a year ago. But as new-car prices rise, buyers aren't going to find as much relief as usual buying used cars.
Used-car prices are up 16% from a year ago, better than three times the usual 4.6% annual increase, Edmunds.com reports. The reason is simple supply and demand. With fewer new cars being sold, dealers are getting fewer trade ins. Also, rental car and government fleets have dramatically reduced their new-car purchases, a prime source of fresh used cars when they are cast out after a year or two of service. But it appears that Cash for Clunkers may also have played a role in boosting prices out of reach of many Americans who need cheap, reliable transportation to weather high unemployment and a weak economy.
The government "Cash for Clunkers" program's provision that all the 678,024 gas guzzlers brought in to be traded for new vehicles be destroyed could be another key factor. Edmunds notes that the highest used-car price appreciation has come in some of the cars that were the biggest targets of the clunkers program -- pickup trucks, up 26.2% and mid-size SUVs, up 25.4%. Even the prices of used minivans -- a segment that many believe is out of fashion now that there are so many crossover choices -- were up 27.1%. By contrast, compact car prices rose only 13.5% and midsize car prices fell a tiny bit. It already has been an expensive outing for taxpayers:
The program, which cost nearly $3 billion in taxpayer funds, gave incentives of up to $4,500 for people who traded in old, inefficient vehicles for gas-thrifty new ones.
Used-car dealers predicted just this scenario when they were griping over the summer about the provision of the law that required cars turned in to be destroyed, many with relatively low miles on the odometer. "It's going to drive prices up of some of the most affordable vehicles we have on the road," said Kelley Blue Book analyst Alec Gutierrez at the time. And that hurts the families most desperate for cheap, reliable transportation. "Those are the cars that lower-income families need," says Geoff Smartt, owner of Smartt Cars in Caldwell, Ida., when we interviewed him in August.
As a stimulus program, clunkers seemed popular for its transparency and among people who got a new car at a government's subsidize discount and for local car dealers who badly needed a sale. But higher used-car prices could be its legacy.
the poor got screwed with this whole program. They couldn't afford to spend $45,000 to get the $4500 "rebate", the used cars they might have purchased were destroyed. This was a sham from the beginning.
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
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!The Historic PES Legend
- 11-05-2009, 12:14 PM
Does anyone else see the irony in the fact that Ford just announced a large profit last quarter and they ae the ones that didn't take govt money.
Coincidence? I think not!
- 11-05-2009, 12:16 PM
11-12-2009, 09:52 PM
I've always bought American cars, and always will, but the selection is narrowed down to Ford cars from now on.
After spending the summer up in Michigan and seeing what the loss of manufacturing jobs has done to their economy, I could never buy a foreign car.
11-18-2009, 01:37 AM
Look at Toyota - even at their America plants, they aren't paying for more handful of pensions because they haven't had plants here long enough. However, as more and more of their workers retire, they'll start to suffer a bit, although never as much as the big 3.
Now, Ford managed to make a profit this quarter because most of their employees decided to take paycuts rather than be laid off. Plus, their Ford Fusion has actually jumped into the top 10 sellers list in America.
I do agree about several points about unions. I've always dealt with them from a management point of view and I know that they're obsessed with tenure, but at the same time if you know the union rules inside and out, you can beat the union at their game.
11-18-2009, 08:10 PM
Lets not forget that it only resulted in around a 20% increase over prior month. Which means that 4 out of the 5 "clunkers" would have been traded in anyhow, which means the taxpayers subsidized each "real" additional purchase to the tune of over $22k
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