By a real "Car Guy" out in Los Angeles , CA .
So, you took FEDZILLA up on its offer of $4500. dollars to trade in your old "Clunker" (interesting choice of words)? Well, let's see who got the best of that "deal"...
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
Net so far +$1000
But you have to pay: $1350 in taxes on the $4500
Net so far: -$350 (that's minus...in the red)
And you paid: $3000 more than the car was selling for the month before
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 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. 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. Chicago politics gone global...with an agenda.
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 ....