The scam

[Cliff]

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 let's 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 let's 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 maybe 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.

[BAD HaBiT]

I thought the program only went toward American Made cars, if thats true then Honda and Toyota wasnt involved and makes the writer of this questionable.

[Lakal]

]That email you posted has been going around for a while now and is wildly inaccurate. I did read and save a response to it but cannot recall the source.

]You are making an assumption that your current car is worth $3500. There's no requirement in the CARS program that your car has to be a certain value. In fact, it could be relatively worthless. Here's a list of requirements from the government's CARS site
· have been manufactured less than 25 years before the date you trade it in and, in the case of a category 3 vehicle, must also have been manufactured not later than model year 2001
· have a "new" combined city/highway fuel economy of 18 miles per gallon or less
· be in drivable condition
· be continuously insured and registered to the same owner for the full year preceding the trade-in
· Moving on to the rebate value, it's actually variable - either $3500 or $4500, depending mostly on the difference in gas mileage between the new car and the trade in.
The federal government won't tax you on it, but some states do. Still, it's not nearly as high as $1350. In Maryland, for example, the tax is the standard 6% excise tax, which is $210 if you got the $3500 rebate or $270 if you got the $4500 rebate.
It is still a case of caveat emptor. Every individual buyer can bargain with every individual dealer. If you think the dealer's trying to charge you too much, don't buy the car. It's as simple as that. (This inflated cost also has nothing to do with a buyer taking advantage of the CARS program. If someone was looking to buy a new car during that period, they had a choice of doing a straight trade in with their old car, or taking the rebate from the CARS program. Either way, the sales price of the car they wanted to buy was the same.)
This e-mail also left out one other source of money for the buyer - the scrap value of their old car.

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