Car Deals Disappear As Dealers Rethink Promotions

Over the past couple of years, consumers have gotten used to dozens of promotions and incentives to purchase American made vehicles. However, as this article from the Huffington Post explains, many car dealerships and automakers are beginning to rethink huge promotions to increase profits.

For years, Americans shopping for cars were treated to all sorts of deals and incentives, especially at the end of summer. Think Cash for Clunkers, which paid up to $4,500, or promotions that offered employee discounts to everyone.

Those days are over.

Deals are becoming more scarce because automakers, newly lean and profitable, are holding the line on those profit-eating promotions. In July, they offered $1,000 less in incentives per car than a year earlier, according to Edmunds.com.

And with no one expecting the government to offer a repeat of the Clunkers program, get ready for fewer discounts on your next car.

"This may be as good as it gets, and get used to it," says Jeff Schuster, the executive director of forecasting for J.D. Power and Associates.

As a result, U.S. auto sales are at a standstill, with potential buyers waiting for more deals but automakers resisting. The industry expects this to be the worst August in 18 years, with sales barely over 1 million cars and trucks. Sales are expected to fall 3 percent from July, according to car-pricing website Truecar.com.

Car Showrooms Quiet After Clunkers Clamor Ends

As many suspected might happen, the number of customers visiting car showrooms and dealerships has dropped significantly since the Cash for Clunkers program has ended. According to a new Boston.com article, inventory at dealerships is accumulating again, and they are being forced to offer new incentives to draw customers.

Manager Adam Silverleib said business was “pretty intense’’ as a result of the federal stimulus program, with the dealership hustling to accommodate customers and handle the piles of paperwork required for them to receive reimbursement on vouchers. “Now we’re kind of back to where we were in the spring,’’ he said.

In an attempt to draw customers back to showrooms, some dealers are offering new incentives, albeit none as enticing as a $4,500 for a rusting junker. Silko, for example, is promoting 2.9 percent financing on new Accords, along with other deals on its website.

Nationwide, customers snatched up 700,000 new cars, most of them foreign-made, and the government ended up paying out nearly $3 billion toward the purchases. But from the start, analysts predicted that Cash for Clunkers would not boost sales for the year. September’s sales swoon seems to be making their case. Car sales are usually slow after Labor Day, but because of the recession consumers this year are especially reluctant to say yes to major purchases. To make matters worse for dealers, most are still waiting for voucher reimbursements.

“It was probably, in the end, a complete waste of taxpayer money,’’ said John Wolkonowicz, a senior auto analyst at IHS Global Insight, Lexington forecasting firm. “The dealers, who were supposed to be the primary beneficiaries, many were forced into cash flow problems because the government didn’t pay them in a timely fashion.’’

Questions for the Tax Lady: September 21st, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: If I sell my house at a loss, can I deduct that amount on my income tax return?

No, you cannot deduct the loss of funds from the sale of a personal residence. However, if the home was an investment property, and not your principal place of residence, then you may be able to deduct a capital loss. However, I recommend you have a tax professional review your finances before taking such a deduction.

Question #2: I ran out of time to trade in my car before the Cash for Clunkers program expired. Do you know it will ever come back?

Although many people have praised the Cash for Clunkers program, it does not look like it will get another extension. The program was successful in increasing auto sales, and provided a decent economic boost, but there has been no serious mention of bringing it back. However, there are other similar programs such as “dollars-for-dishwashers,” that are likely to begin in the next few weeks.

Post CFC Tax Incentives to Buy a Car

Now that the popular Cash for Clunkers (CFC) program has ended, consumers can no longer take advantage of a $3,500 or $4,500 rebate towards the purchase of a new car. However, the CFC program was just one of the many incentives the government has setup to encourage taxpayers to buy a new vehicle. For those of you debating whether or not you can afford a new car, check out the following list of Federal tax incentives.

New Car Purchase Deduction

To help stimulate the economy, earlier this year the IRS announced a new tax deduction for taxpayers who purchase a car in 2009. The new deduction allows you to deduct “state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle." Therefore, if you pay $2,500 in taxes when you buy that new car, then you can deduct those funds from your taxable income come next tax season. Just be sure to keep all of your sales documents so you have proof of the taxes you paid. Additionally, there is no word yet on whether the deduction will be extended or not. So, if you are planning to buy a car then you might want to do so before the end of 2009.

Hybrid Tax Credits

There are numerous tax credits that are still available for those of you hoping to purchase a hybrid, or alternative fuel vehicle. The highest of which is a $4,000 credit for taxpayers who purchase a Honda Civic GX that runs entirely on compressed natural gas. As opposed to the new car sales tax deduction, the hybrid incentives are tax credits, meaning it will lower your tax bill dollar for dollar. To see a list of all the qualifying vehicles, check out FuelEconomy.gov.

Electric Vehicles

Although somewhat less practical then a hybrid vehicle, electric powered automobiles come with the best set of tax incentives. As part of the Obama administrations American Recovery and Reinvestment Act of 2009, a new credit was created to encourage taxpayers to purchase electric vehicles. The credit is up to 10% of the purchase price, and depending on how much the vehicle costs, it could be a pretty significant tax credit. For those of you who might be hesitant, later in 2010 plug-in electric vehicles are expected to hit the market and will be eligible for a similar credit.

Vehicle Donations

If you decide to purchase a new vehicle, then you may want to consider donating your old car. In addition to knowing you are supporting a good cause, you can also reap certain tax benefits. There are several reputable charities that will take your still-running (sometimes even not running) vehicles. Just make sure that the charity you select has a non-profit status with the IRS, that way you can include the donation as a charitable contribution on your next tax return.

Conversion

If you are a mechanic, or are just handy with cars, then you might be able to take advantage of conversion tax credits. Another section of the American Recovery and Reinvestment Act of 2009 gives taxpayers who purchase a kit to convert their car to an electric vehicle a 10% tax credit, up to $4,000. Additionally, according to the IRS taxpayers may claim this credit even if they have already claimed a hybrid purchase credit.

Business Expense

Finally, if you are self-employed or own a business then you might be able to take advantage of certain business car credits. You could take a mileage deduction based on the amount you drive your car for business reasons. Alternatively, if you lease a vehicle then you could write off a percentage of the monthly payments that corresponds with the amount of time you use the car for work. These credits could save you up to $1,500 per year. However, business related vehicle expenses can be quite tricky, and if you intend to take this route then I highly recommend speaking with a tax professional before making any decisions.

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Obama Administration Extends Car Dealers' Cash for Clunkers Deadline

The popular Cash for Clunkers program gained so much momentum in its last few days, that dealerships had a hard time keeping up with the rebate-filing deadline. In response, The Department of Transportation has extended the deadline to this afternoon instead of 8 p.m. last night. The sales must have been completed by the original deadline, but dealers who were unable to submit their requests last night can do so today. Check out the following article from USA Today article about the announcement.

Department of Transportation spokeswoman Jill Zuckman said the deadline has been extended because "overwhelming demand" shut down the DOT website temporarily this afternoon.

As the Obama administration's popular auto rebate program wound into its final hours, Transportation Secretary Ray LaHood told reporters that it has been "wildly successful" in terms of jump-starting the economy.

"You've got dealers, you've got mechanics, you've got the banks doing the loans," LaHood said in Elizabethtown, Pa. "So this isn't just about the auto industry. We're talking about tons of common, ordinary people who are working today because of this program. This is such a win-win for the auto industry and for common ordinary citizens, too."

As of Monday morning, $2.58 billion worth of vouchers have been submitted and 625,000 old, polluting cars have been taken off the road in exchange for new, fuel-efficient cars, Zuckman said. Because most people turned in gas-guzzling trucks and SUVs in exchange for smaller cars, the Department of Transportation is figuring the program will mean a big decrease in pollution. The DOT says the clunkers that have been turned in were averaging 15 miles per gallon, and the new cars people got are 60% more efficient.

A Rush to Cash in on "Cash for Clunkers"

As we all know, the massively popular Cash for Clunkers program sponsored by the Federal government has swamped U.S. car dealerships. Unfortunately though, the program is expected to end at 8 PM tonight, as a busy weekend for auto dealers is expected to use up the remaining rebates. So if you are hoping to take advantage of the program then you better hurry up!

CBS News published the following article about how busy dealerships were this past weekend after Friday’s announcement that over 2/3 of the available rebates had been requested.

"I've never seen the showroom - in the 27 years I've been here - this busy," said Brian Benstock, general manager of the dealership, Paragon Honda.

The story is the same all over. At a Toyota dealer in Maryland, salesmen are hip-deep in clunker deals. And the back lot of Christian Gomes's Ford store on Long Island it’s the clunkers themselves that run 60 deep.

Gomes said he sold his entire inventory. The government's Cash for Clunkers program invigorated comatose car showrooms. The biggest winners were Toyota, raking up 19 percent of all the sales, followed by GM with 18 percent, Ford with 15 percent, and Honda with 13 percent.

Richard and Stephanie Miller didn't plan on dumping their clunker. But their 16-year-old Ford Explorer was wheezing after 153,000 miles.

"She gave us a lot of good years, but she's had it," Stephanie Miller said.

So the millers went shopping today. An hour and a half later, awarded with $3,500 in clunker cash from the government and a $1,500 rebate from ford, they were they owners of a bright red 2010 Ford Fusion.

"I voted against Obama but the man has a lot of imagination," Richard Miller said. Stephanie Miller added that she was excited about the gas mileage of the new car.

Interest in the Cash for Clunkers Program Diminishing Already?

Just barely a week after launching, it looks like the public’s interest in the new Cash for Clunkers program is already fading. Although car dealerships and showrooms were overwhelmed with traffic earlier last week, when sales reportedly topped 250,000.

"We see that interest dying down," Edmunds.com Senior Analyst Michelle Krebs said in an interview on the consumer auto industry resource group's analysis of buyer intentions. "It's still high. It's better than pre-clunker levels, but it's off its peak."

Krebs said the original $1 billion funding for the program was "very low in relation to the size of the auto market." This, she said, created a "Gold Rush" mentality where consumers stormed dealers at the end of July and in the first days of August to cement discounts with rebate funding running low.

The "clunker" initiative offers rebates of up to $4,500 when consumers trade in older cars for more fuel efficient new ones. Dealers say buyers are trading in mainly sport utilities, pickups and other U.S.-made vehicles for fuel stingy foreign-made passenger cars.

Automakers credited "clunker" trade-ins for boosting July sales to the best annualized rate for 2009, a year in which carmakers have contended with a devastating decline in business. The horrid, recession-driven sales environment contributed to bankruptcies at General Motors Co and Chrysler this spring.

A Deeper Look at the Cash for Clunkers Program

The Federal government’s new “Cash for Clunkers” program has been getting a lot of attention over the past week. The phrase was trending on Twitter most of last week, and even car dealerships are beginning to use the phrase in commercials and billboards. However, with rumors of a depleted budget, and myths about qualifying, many taxpayers are getting frustrated and confused. To help readers of my blog better understand the program, and see if they qualify, I have put together the following helpful article.

What is It?

Officially known as the Car Allowance Rebate Systems – or "CARS" – the programs was signed in to law by President Obama on June 24th, 2009. Taking examples from similar programs through out Europe, the American version was designed to encourage taxpayers to trade in their high gas-mileage (less than 18 mpg) vehicles for more efficient new automobiles. Depending on how high the new vehicles mileage is the rebate is either $3,500 or $4,500.

Not a Tax Credit

Unlike the Federal incentives for first time home buyers, the Cash for Clunkers program is not a tax credit or deduction. In fact, it is being managed the U.S. Department of Transportation, not the Internal Revenue Service. When a qualifying taxpayer goes to buy a car, the dealership will automatically credit the rebate towards the purchase price. You do not need to claim it on your income tax return, you do not need to request the rebate; the dealership should handle everything.

Who Qualifies?

Qualifying for the Cash for Clunkers program actually has more to do with the car than the car owner, as it turns out. Generally speaking, to qualify your car must have a gas mileage of less than 18 mpg, and be no more than 25 years old. However, CARS has put together a list of the specific vehicles on the market that qualify for the program, click here to download it in PDF. You will also need to provide proof that you were both the registered owner and had insurance on the vehicle for one full year.

New Vehicle Restrictions

If your old vehicle is eligible for the credit, and you can provide proof of ownership and insurance, then you are now ready to begin looking for your new ride! However, remember that you new car needs to meet specific restrictions as well. It must be a new 2008-2010 model, cost no more then $45,000, and it must be a car or truck (i.e. no motorcycles, mopeds, etc.)

Tax Debate

In addition to confusion over taxpayers claiming the rebate, many dealerships have also been confused about the taxes related to the Cash for Clunkers program. In the initial bill, lawmakers apparently forgot to specify whether dealerships had to pay taxes on Cash for Clunkers car deals. Luckily, the mistake was fixed quickly, and car dealerships were disappointed to learn that Cash for Clunkers rebates would indeed need to be considered taxable income. For consumers though, the rebate does not need to be counted as taxable income.

Extension from Congress

Last week there was a lot of speculation that the program had ran out of funds only a few days after it’s launch. However, although the initial $1 billion approved by the President reportedly did not run out, congress has already added another $2 billion to the program. The decision to add more funding to this highly popular rebate system was quick, and mostly bipartisan.

Premature Car Sales

Although the sales made during the Cash for Clunkers program will stimulate car dealerships instantly, some experts warn that these sales were ones that would have been made in the coming months anyways. Meaning that auto sales would likely drop once the program expires. Some bloggers suggest that although the "adrenaline shot" of recovery is certainly useful, the sudden drop in sales a few months away could hurt the slowly recovering economy.

Stimulated Automakers

In addition to encouraging Americans to get behind the wheels of more efficient vehicles, one of the biggest purposes of the Cash for Clunkers programs was to stimulate the struggling auto industry. Thousands of American taxpayers are employed by the auto industry, and by increasing care sales the government is hoping that it will help with unemployment problems. There has been debate about which car manufacturers are being stimulated, since cars produced by Toyota and Honda (both Japanese automakers) both have vehicles making the top list of Cash for Clunkers trade-ins. However, it is important to remember that even though these companies are based out of the country they do employ thousands of American workers in assembly plans and dealerships. Furthermore, Ford and GM both made up a majority of the top 10 list.

Is it Truly Eco-Friendly?

The main goal of this program was supposedly to lower American fuel emissions by encouraging taxpayers to buy more efficient vehicles. However, many argue that it is not having the desired effect. According to CNN, private reports show that most people receiving a Cash for Clunker rebate use it to buy a truck or SUV. Additionally, research for the University of Berkeley shows that most of the “clunkers” being traded in were not being used as primary vehicles. Instead, families are trading in their secondary vehicles which they rarely use.

Little, if any Help for Low Income Americans

Although the Cash for Clunkers rebate system was designed to help low income Americans, many suggest it is having the opposite effect. When a vehicle is traded in under the program, it must be recycled and NOT resold. Therefore, the inventory of used vehicles will decline and many predict that prices of user cars will increase as a result. Since you cannot buy a new car for only $4,500, and many low income families buy used vehicles, many are worried that the program will have a negative impact on struggling Americans. Additionally, according to the Heritage Foundation found that “the average income of those purchasing new cars under the program was $57,700--only slightly below the $61,000 for all new car buyers.”

Questions for the Tax Lady: August 10th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an e-mail, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Do you know if the government is planning to do any type of first time home buyer tax credit next year like they did this year?

This is a very tricky question to answer because no one really can predict exactly what changes Congress will make to the tax code. Currently to be eligible for the credit you must purchase a home before December 1^st, 2009 and there has not been any serious mention of extending. Additionally, as signs continue to roll in that the housing market crisis is leveling off, funding another huge tax credit tax credit for home buyers probably is not the Federal government’s top priority.

Question #2: If I sold my house in 2007 will I be eligible for the first time homebuyer’s credit?

No. Unfortunately, the credit is only available to taxpayers who did not own a home three years prior to the closing date on the new home. However, if you do buy a house you will be eligible to deduct some of your closing cost, points, fees, etc., and remember that you can also deduct your mortgage interest.

Question #3: How do I know if my car qualifies for the Cash for Clunkers rebate?

First of all in order to qualify for the Cash for Clunkers program you need to have a clear title, and have proof that you were both the registered owner and had insurance on the vehicle for one full year. The program also only applies to a specific list of cars. Click here to download a PDF from Cars.gov of the vehicles that qualify.

What If Cash for Clunkers Was a Tax Credit?

While auto dealerships and consumers continue to enjoy the benefits of the Cash for Clunker’s program, Gerald Prante of The Tax Foundation Blog has put together a new post explaining what would happen if the program were a federal tax credit. Check out the text of his post below.

Critics of the "Cash for Clunkers" program are out in full force, claiming that its problems are evidence that government is inefficient and that it is further proof that government shouldn't get involved in something as important as health care.

But suppose that instead of the government providing $4,500 in outlays per qualifying car in a program that is being administered by the Department of Transportation, the Congress instituted a $4,500 refundable income tax credit that met the exact same qualifying criteria as the current program, yet was administered by the IRS. Would the tax credit be good fiscal policy merely because it's mostly classified as a tax cut as opposed to an "outlay?"

The economic difference between these two scenarios is zero (except for possibly differences in administrative costs). Both policies would be financed by deficits, leading to either lower spending in the future or higher taxes in the future.

Despite this fact, it's likely that many of these same critics of the $4,500 cash for clunker outlay who are citing its problems as proof government doesn't work would have supported such a $4,500 cash for clunker tax credit merely because it would have been classified as a "tax cut" instead of an "outlay."

For these people, tax policy is all about semantics instead of understanding the economic effects of differing fiscal policies.