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SO... you took FEDZILLA up on its offer of $4500 dollars to trade in your old "Clunker"?
Well, let's see who got the best of that "deal":
If you traded in a clunker worth $3500 (the estimated average value of the traded-in "clunkers"), 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 at this point.
Not too bad...
However, you will have to pay taxes on the $4500 come next April 15th... (something the auto dealers either didn't know, or didn't tell you). If you're 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 far less to run and repair than the payments you will now be making.
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.
But 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 for the same car 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 these 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 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 that financed the car you didn't really need.
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 ! And the poor consumer got saddled with even more debt that they cannot afford.
FEDZILLA'S merry men 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 gave away his $3500 car and payed an additional $3350 for the privilege.
Chicago politics gone global...with an agenda.
...and some sour icing on this rotten cake? 70% of the cars sold were JAPANESE and KOREAN, not American.
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 in Florida that's for sale...
Gee, and I thought something really stunk when it came to that cash for clunkers deal, besides the fact that for people looking for an inexpensive car it is much harder to find one.. Nice to see that once again I was totally wrong and was simply wearing my tinfoil hat just a little too tight!
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