Gaming the system: Cash for Clunkers?

[tricky lugnuts]

Hope this isn't too political...

I'm assuming that no one here - like myself - will actually be turning in their Charger or other beloved Mopar product as part of the new "Cash for Clunkers" legislation being adopted.

All well and good.

But what's to stop me from going out and buying that $50 1975 Ford Jalopy, getting it to run as poorly as I can for as little as possible, and turning it in for $4,500 to buy a new Kia Rio (or similarly cheap crap-box)? Then taking the Kia Rio - which I bought, with no payments required, for about $3,000 and one $50 Jalopy - and selling it as a "new car" to someone else for $1,000 less than the dealer?

Is anyone else having these kind of thoughts??? I'm just curious, with so many people losing their jobs and all...

Tricky Lugnuts

[Mike DC]

 
I thought I remembered hearing about a 25-year-old exemption being talked about in connection with that bill.  If we can get an exemption like that, we're fine.

   

[Foreman72]

so let me get this straight...your saying i could buy a "clunker" piece o crap car, like an old jimmy or something thats a guzzler (no offense to jimmy owners )...for x amount of dollars...and then i could have it redeemed for cash by the government and get a great deal more?

or did i miss something...cuz if thats the case i just squared my college finance issues

[tricky lugnuts]

Clarification: Here's the deal according to a statement from my brilliant Ohio Congressman (the bill still needs to be approved by the Senate):

Passenger Cars: Old vehicle must get 18 mpg or less. (That's easy enough to find.) Turn it in as part of the "cash for clunkers" program and buy a new vehicle that gets at least 4 mpg or better than the old vehicle and get a $3,500 voucher; buy a new vehicle that gets 10 mpg or better than the old vehicle and get a $4,500 voucher.

I'm saying buy your old piece of crap factory rated to get 10-15 mpg at most - a Jimmy, for one example, as you say - for $50 (or as little as you can), make it run for as little as possible (if that's even needed as part of the program, which I suspect it is), and then turn your old clunker in and buy a new Kia Rio, primarily because they're cheap.

With the voucher you could get a new Kia (or some such crap) for less than $5,000.

Anything you could then resell your new fuel-efficient Kia to someone else for over that $5,000 cost would be pure profit for you.

Use the incentive to lower the cost of your new vehicle and then sell it to someone else for less than the dealership can. Maybe you could even turn in another piece of crap car for trade in at the dealer to lower your up-front costs!!! Granted, in selling later you'd probably be preying upon people with bad/no credit, but....

Repeat process as many times as law allows to supplement your income and possible clear out your junkyard...

Of course, I'm not advocating this... It just amazes me this is possibly what it's come to in order to prop up sales for the new Government Motors.

I haven't read the entire piece of legislation. Knowing Congress, it's probably 1,000 pages long. There are other provisions for trucks, light-trucks, etc... In some of the cases the new vehicle only has to get 1 mpg better than the old - something that's driving the "greenie" crowd crazy... I'm just curious to know if other people are getting similar ideas about this "cash for clunkers" wunderlegislation. If it's feasible, I'll only charge a 5% royalty for my R&D! 

[Tilar]

But what's to stop me from going out and buying that $50 1975 Ford Jalopy, getting it to run as poorly as I can for as little as possible, and turning it in for $4,500 to buy a new Kia Rio (or similarly cheap crap-box)? Then taking the Kia Rio - which I bought, with no payments required, for about $3,000 and one $50 Jalopy - and selling it as a "new car" to someone else for $1,000 less than the dealer?

Because everyone and their brother would go to the junk yard and get a car to trade in also. Plus everyone knows you can do better than $1000 off of sticker on most anything out there. However, That $3500 or $4500 voucher will do away with any dickering. It will be sticker less the voucher price and nothing more. Plus that "$50 1975 Ford Jalopy" you were looking at last week is now worth at least $3500 provided you use it as a trade in.

The Cash For Clunkers (CFC) program, if approved, could lead to over 1.3 million new-vehicle purchases, according to industry experts. Consumers would qualify to receive a $3,500 voucher their current vehicle gets less than 18 mpg and they purchased a car that gets at least 22 miles per gallon. Consumer could receive up to $4,500 if their new car purchase gets at least 10 mpg more than their old vehicle.

[dodgecharger-fan]

The logic still works because that 75 $50 clunker may NOT be worth 3500 to the person selling it because they have no intention of buying a new car.
As such, they should have no interest in soaking someone for $3500. Sure, there are some that would, but most, I think would not bother because they'd end up staring at the clunker in their yard for a long time as it would never sell.

The only question is: How many times can you turn in a clunker? I'd have to assume that there is a limit.

Then, the only concern is selling the car(s) in a timely manner. You're sitting on about a $5000+plus clunker+repairs(if any) investment until you can sell the new car. Can you let that much money go and for how long? I don't think you could finance it and then turn around and sell it right away - you would end up paying all of the interest on the car loan to get out of it - at least in most cases. You'd need a personal loan to get around that. So, add any interest to your costs.

Also, are there any rules about how many cars you can sell in a period of time before you have to register as a dealer?

$50 clunker purchase
$200 repairs (just throwing a number out there)
$9500 purchase price of new car (based on tricky's 5000 price plus 4500 rebate)

9750 - 4500 rebate = 5250.

Sell for 7500 and you take 2250 out of the deal not accounting for any DMV costs, interest on loans, or any other admin type of costs.

Pretty good plan. I do suspect there's a limit on how many time you can do this though - on one end or the other. Otherwise, there'd be a lot full of "just delivered cars for thousands less than the dealer" on every corner.

[nh_mopar_fan]

Has anyone actually bothered to read the bill?

http://www.usatoday.com/money/autos/2009-05-11-chrysler-gm-cash-clunkers_N.htm

Q: What's to keep me from buying a junkyard car for a few hundred bucks, getting it barely running and trading it?

A: The one-year-in-service requirement noted earlier. Lawmakers wanted to exclude the revival of so-called junkyard dogs, because they've already been taken off the road.

[Todd Wilson]

The people that are driving clunkers around are doing so because thats all they can afford. This program wont benefit the guy that drives a car 4 years and then trades it in as it should be worth more then 4500$

What I am affraid this bill will do is make the good used market into a bad thing. WIll the price of good used cars go way up or will they not be able to sell any used cars as a new one could be had for a better price by turning in your 8 year old car (using the kia example above).  My friend runs a parts store and sells used cars there as well. Routinely sells late 90's   Buick Park Avenues and such for 3000$ range. Buys them at auction for 2300$ - 2500$.  These cars usually have 100000 miles on them but are in excellent shape. Some even still look brand new. What would trade in be for this car? Probably not much but it would be worth 4500$ for a new one. If everyone did this  the wholesale and used market would tank in a hurry. My friend would no longer be able to sell used cars as there wouldnt be any.

Who is responsible for the clunker car once its turned in/traded in to the dealer. All the dealers gonna have to absorb the costs to dispose of the car? Once a car is turned in its done. Scrapped out and gone. The way I understand it it wont go to the junkyard to be scrapped and turned into used parts. It simply has to be smashed and recycled.So going to a junkyard to get a transmission for something isnt gonna happen. This may hurt the junkyards out there over time.

Any other used vehicle out theres price may rise also. In a sense everything is now worth at least 4500$

I also wonder what would happen to dealerships. Some dealerships sell more used cars then new ones. I doubt everyone and their dog will flock to the dealerships to buy a new vehicle on this program. The Kia example above looks really good. New car for 5000$ range but not everyone will do this. It will knock the price down off of the higher end vehicles but still a 25000$ vehicle is now 20500$  is a good deal but for some out there they simply cant afford a 20500$ vehicle but a year ago they may have purchased a used vehicle off the used section of the dealer for 10000$. Good used vehicle with nice options and comfort. Now they will be forced into buying a new little crap box car.


Getting anything out of the government is always a hassle.I wonder when you will get your "voucher"   1-3 months after purchase? Will the dealership once again have to take on more paperwork and government crap right there on the spot to get an instant voucher?  Heck it took me like 5 months to get my DTV vouchers this last year for the tv 's.  They ran out of money for a while and stopped mailing them out.


I could go on and on. I think the whole thing will be a screwed up mess.


Todd

[Mike DC]

The people that are driving clunkers around are doing so because thats all they can afford. This program wont benefit the guy that drives a car 4 years and then trades it in as it should be worth more then 4500$

Agreed.  The whole thing is basically a mess.  Few people with a $1200 clunker are gonna be in the market for a new car, either. 

It reflects a deep misunderstanding of the way people buy cars today.  Price is the overwhelming factor.  People driving $2000 cars generally buy another $2000 car every few years, and people with $20,000 cars buy another $20,000 car every few years.  But people with $2000 cars don't often buy a $20,000 car. 



Subsidized new car purchasing schemes have been re-introduced every decade or so for a long time.  MPG, pollution, boosting Detroit . . . the specific reasoning changes from time to time, but the basic stupidity of it never does.  We just gotta try to keep the stuff voted down.

[nh_mopar_fan]

Read the bill.

There is no voucher involved for the buyer. That money goes straight to the dealer in an electronic transfer.

Dealer will be required to junk the car. The destruction of the drivetrain is MANDATORY. The rest of the car can be parted out. So, yeah, if you're looking for a used motor, this will really do a number on what is out there.

[Foreman72]

Read the bill.

The destruction of the drivetrain is MANDATORY.

well thats stupid...guess its like capitol punishment for cars committing environmental murder in the 1st degree

[Ghoste]

Without a trial, so it's more like summary justice administered by a despotic tribunal (the EPA).

[Charger74]

One thing to remember also is that those who drive those $2,000 dollars cars more than likely cannot also afford to make a monthly car payment of $300 - $500 dollars.   There is a reason their driving those cheap, rusted out cars. 

[no318]

One thing to remember also is that those who drive those $2,000 dollars cars more than likely cannot also afford to make a monthly car payment of $300 - $500 dollars.   There is a reason their driving those cheap, rusted out cars. 

Yes, let's have the gov't help subsidze them into payments they can't afford and are likely to default on....sounds like Fanny Mae to me.

[bakerhillpins]

Jezus, this bill is stoopid!   

Sorry, just had to state the obvious. 

[Ghoste]

Unfortunately, so is the average voter and that's why this kind of crap stands a good chance of getting through.

[Charger74]

Unfortunately, so is the average voter and that's why this kind of crap stands of good chance of getting through.

Bingo, you got the thousand dollar answer right there Ghoste.

[Brock Samson]

FYI:

How 'cash-for-clunkers' bill got junked
Andrew S. Ross  Wednesday, June 17, 2009

   http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/16/BURE187Q49.DTL

[bull]

This is more proof that retards are running the show. I just think it's funny how the minds work in DC. They seem to have no grasp whatsoever on how the average person lives.

[69charger2002]

well the gaming system will not work at all. the new bill passed, and it's only good for 1984 and later cars, and YOU HAVE TO HAVE THEM INSURED AND REGISTERED FOR A YEAR TO QUALIFY. that of course means you can't go run out and buy a $400 junker tomorrow and turn it in for the $4500 credit. that is good to know, i don't think this bill will have as big of an impact as they were hoping. i know i'm not trading in any of my vehicles for a new one.
that will essentially not change the value of older used cars nearly as much as we were discussing
trav

[Todd Wilson]

Hmmmmmmmm should I take my beat to crap 1986 Honda Prelude that is falling apart but still runs like its new and worth about 300$ to sell  and go get me a new car?!   



Todd

[Ghoste]

It may not make a huge impact but the fact that the feds have started a car crushing initiative means the states will see a better chance at getting these political opportunities passed.  Anytime the government steps in to try and force people to crush cars I get nervous.

[Old Moparz]

Hmmmmmmmm should I take my beat to crap 1986 Honda Prelude that is falling apart but still runs like its new and worth about 300$ to sell  and go get me a new car?!   



Todd

On paper that may seem like a good idea, except the Honda may have a higher MPG rating than the new car & will screw it up. Also, a dealer will not give anyone a discount worth a crap if they know you have a voucher to get your discount from another source. Look at how trade-ins work, & why it's best to not let them know you have a trade-in until you negotiate the new car price. They negotiate the value of the trade-in, not the value of the new car.

Most people seem content thinking they're getting $3000 for a $2000 car, but that's simply $3000 off the full new car price. If they negotiated the new car from $25,000 down to $22,000 first, then the $3000 for the $2000 trade-in would be a sweet deal doubling the discount. In reality they're getting a $25,000 car for $22,000 & giving the dealer their old car for free.

Why do you think dealers make such a huge profit on trade-ins whether they keep them on their used car lots or wholesale them elsewhere?

My guess is that if the dealer knows you're getting a voucher from Uncle Sam, they won't be so quick to discount their new car to you. It's in their blood to be greedy & screw you no matter how much overstocked inventory they have.