Is the Cash-For-Clunkers program a good deal?

Let's consider how the Cash-For-Clunkers works:

You may receive $4,500 for your so-called clunker if you trade it for a new vehicle that gets better gas mileage.

But is your current vehicle really a clunker?

Or, does it provide you with reliable transportation? So what if it uses a few more gallons of gas than a new, smaller car may use?

Over several months has your vehicle cost what you feel is too much?

Simply put, a clunker is a vehicle that requires frequent maintenance and uses a lot of gas.

You most likely do not have a clunker. If you have a vehicle that simply gets a little less gas mileage than some newer vehicles, but gives you reasonable transportation, you could consider waiting to trade. By waiting, you will likely make a better deal on a newer vehicle that gets even better gas mileage.

If you trade the vehicle you now own under this program, you may get a little better gas mileage. But, in return you will likely end up with a smaller, less useful vehicle that adds monthly payments -- perhaps large monthly payments -- to your household budget.

Is it worth trading today in a hurry just to beat some artificial deadline imposed upon you by the government?

About Your Deal:

Consider the possible deal you can make at a car dealer when the Cash-For-Clunkers government program ends.

It is likely that car dealers will again have lots full of new cars. Dealers will again be begging people to come in and trade in.

When dealers' lots are again filled with new cars they need to sell, and when dealers are searching for customers, you will likely be able to make a better trade-in.

That is because today dealers know you are excited and want to make a deal. Dealers will likely charge you MSRP, or give you a smaller discount on the new vehicle.

Today car dealers are filled with potential customers rushing to trade in their government-defined clunkers. If you walk into a car dealer and they see that you want to participate in the Cash-For-Clunkers program, you will experience why they are called car DEALERS !

Remember, after this government program ends:

--- You will likely receive a larger discount on a new vehicle.

--- You will have more vehicles to choose from -- and they will get even better mileage!

--- Your vehicle will be worth about the same as it is today.

A Visitor's Comment

Below is what a visitor to this site had to say about the Cash-For-Clunkers program. Ignore all the gas crap and just look at how the naive, but trusting car buyer got taken to the cleaners.

If you traded in a clunker worth $3,500, you get $4,500 off for an apparent "savings" of $1,000.

However, you have to pay taxes on the $4,500 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 $4,500.

So, rather than save $1,000, 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 $3,000 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:

You traded in a car worth: $3,500

You got a discount of: $4,500

Net so far +$1,000

But you have to pay: $1,350 in taxes on the $4,500

Net so far: -$350

And you paid: $3,000 more than the car was selling for the month before.

Net loss = $3,350

We could also add in the additional taxes (sales tax, state tax, etc.) on the extra $3,000 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 $4,500 they "gave" you. The car dealers made an extra $3,000 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.

The government and its band of bureaucrats convinced Joe consumer that he was getting $4,500 in "free" money from the "government" when in fact Joe was giving away his $3,500 car and paying an additional $3,350 for the privilege.

Visitor Comment