Will these car buying incentives get you to buy a new car?

by Xin Lu on 31 March 2009 45 comments

This week President Obama rolled out an initiative for the failing American  automakers to restructure.  The plan proposes several consumer incentives to jumpstart auto sales.  Here are some  details on the financial incentives  you can expect if you buy a new car this year.

First, the government is picking up the tab on the warranties of General Motors and Chrysler cars if consumers were to buy a new car from these companies. Consumers have been wary of buying these cars since if the companies go bankrupt the warranties may not be honored.  Now that problem is gone and these cars should be a little easier to sell.

Next, the federal stimulus package passed earlier this year already has a tax incentive for consumers who buy a car from February 16th to the end of the year.  Basically, consumers can deduct the sales or excise taxes from purchasing a new car from their income taxes.  In California this tax deduction can be quite significant since sales tax is 8% to 9%.  In states with no sales tax this would not be so much of an incentive.

Finally, there are several "clunkers for cash" proposals going around Congress that allows consumers to trade in old or fuel inefficient cars for cash from the government.   Essentially, the government is offering to buy crappy cars for more than what they are worth to encourage consumers to buy new fuel efficient cars.  However, this proposal may cost the government billions of dollars per year and that money is yet to be found.  President Obama seemed to be highly supportive of this plan and a similar program in Germany supposedly boosted auto sales by 20%.

Personally, I plan to drive my ten year old Honda Accord another ten to fifteen years because it is unnecessary to replace it despite the incentives.  What do you think?  How big of a financial bonus would you need to buy a new car in the current economic climate?  If you were offered $3000 to $5000 for your "clunker", would you take it?
 

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Guest's picture
Greg

I am quite happy with my seven-year-old, 85,000 mile, never-been-wrecked, paid-for vehicle. My car has been sans payments for quite a few years now. I checked the car's value on Kelley Blue Book just the other day. According to KBB, the car is worth only about $4,000.00. Believe it or not, this is actually encouraging to me. This means that if my car gets totaled for some strange reason, I can buy its equivalent for only four grand. As long as I can pick up cars like mine for this kind of price, I will be out of the new car market.

Guest's picture
Lisa

Yes! How do I get in on this!

Guest's picture
stanley

yes I am buying a new car.
I already put deposit on car I wanted.
My clunker a 1996 windstar worth $300.00 trade-in or
$900.00 if I sold it Myself. thats at least $3600.00 down
In actual value. ($4500.00) total trade-in
plus I get S plan discount on top of other discounts.to me It's a great deal.

Guest's picture
Guest

The clunkers for cash idea seems like it is wide open for abuse...and frankly, I'm not interested in buying, via my taxes, new cars for the entire population of the United States. What environmental initiatives are we foregoing so that everyone can have shiny new fuel-efficient cars? It seems that there are plenty of other things we could be doing with that money that would have a greater impact than handing people money for a new car.

Not to mention that if we hold onto the cars we have for a long period of time and maintain them properly, even if they are "clunkers", that is still a net gain for the environment -- getting a new car only puts the old car in the trash heap and any environmental savings due to increased fuel efficiency is negated by the new materials that went into the replacement car and the byproducts of the manufacturing process.

Guest's picture

I am never going to be interested in buying a new car, and no retarded cash for clunkers problem is going to change that. Currently, both cars we own would probably be able to fall into that category. Would I enjoy getting more money than they are worth out of them... you bet. But I would only upgrade to a late model used car, so that wouldn't really help much.

I can't imagine this was the only factor in Germany's 20% sales increase. Often times random programs like that are given credit for trends that had several factors in the first place!

Guest's picture
falnfenix

i'm thoroughly against the "cash for clunkers" proposals being suggested...mostly because working on old cars is a hobby of mine, and this will utterly kill the restoration market. i have been known to buy two of an identical vehicle to ensure one is functioning at all times, and i'll still save thousands over a new car.

Guest's picture
lucille

We just are not people that buy new cars every few years. We don't even buy used cars very often. We usually try to maintain what we have as long as possible. When it becomes too ancient to bother fixing it or gets some massive repair needed that out does the worth to us of the vehicle we consider looking for another one.

The only even possible consideration for buying a new vehicle is if one of the new technology cars comes out like the Volt or the VW blue motion models. Even then it isn't a given.

Part of the problem is that the auto industry was running based on all of these people buying a new car every 2-3 years. Most did it for status or fashion. If they stop buying new cars frequently you really can't expect people like me to make up the slack.

Guest's picture
Olivia

We've always had used cars. New cars would be out of the question for alot of reasons, no matter how we'd obtain it. With a young male almost driver in the house, our car insurance would kill us. Then there's the new car off the lot instant depreciation, and the hefty car payments. (With our present system we save to pay in cash in full, avoiding interest and increasing negotiating options.) The phrase "government paid" is being tossed around, as if it were some ancient wealthy uncle out there, dishing out goodies to his relatives. It'll be our tax money folks, and our kids and our grandkids...it never pays to presume upon the future.

Guest's picture
Nathan

No

Guest's picture
drleonesse

I haven't had a car payment since 1992. This is an essential piece of MY financial freedom.

I know it is naive to wish that businesses and government would spent less than they earn like the rest of us are trying to do but, there it is.

Guest's picture
Colin

Maybe if domestic cars didn't suck. Maybe.

How about slashing the UAW's salary in half as a condition for this incentives?

In the end, you'll have to pry the keys to my Accord from my cold, dead hands.

Guest's picture
Jim

"How about slashing the UAW's salary in half as a condition for this incentives?"

Union wages are already on par with the wages of Japanese factories in US. The bigger difference is NOT hourly wages. The big labor related cost for US auto makers is the cost of pensions and medical care for the 100's of thousands of retired US auto workers that the foreign makers do not have to pay.

Assembly line labor accounts for around 10% of the cost of new cars.

Guest's picture
Guest

Might be a good time to trade in the 15 year old Mustang with 170K miles or the 10 year old Ranger with 120K miles or the 16 year old Vette. All have been great and all still running great with hardly a problem ever. If the program does not happen, I will keep them all. Probably good for many more years. Never went back to the foriegn cars in the last 15 years cause all my american cars/trucks have been great cars.

Guest's picture
Guest

no

Guest's picture
Guest

I will not even consider purchasing a car from an auto manufacturer that has received help from the government no matter how many incentives they offer. I can not support the expansion of the government into areas that it should not go.

Guest's picture
eigafan

The hidden cost of a shiny new car is insurance. Having to pay for full coverage while paying off the bank loan. I'm never going to make the mistake of buying a new car again!

Guest's picture
Tabatha

I think a clunkers for cash program is a ridiculous overreach of government. But I think it's great when car lots offer those same deals. With the price of so many scrap metals going up I'm surprised we aren't seeing more offers like these privately.

Guest's picture
Roscoe

My bike works great.

I'll buy a Pure electric car.

Never buying another gas powered dinosaur.

Might not even buy the electric, i can use public transport for long distances.

Guest's picture
jacktukis

Bikes work great, as long as you don't have to commute too far and live somewhere warm enough to ride it year round (or nearly).

Public transport is heavily, heavily taxpayer subsidized. As a rider, you probably pay about 1/5 of the actual costs of your transportation. Those that religiously rely on public transportation are leeches on the underbelly of society.

I would love to buy an electric car, too, but it financially doesn't make sense to do so at the prices being bandied about today. I'm sure it will make sense in the future, but it doesn't yet.

Guest's picture
Guest

You must not live in the Southeastern USA. Public transportation?!?!? HA hahahahahhahhaaa....

Guest's picture
The Economist

I think it's sad that our governments solution to the fact that we're broke is to spend more money. What's even more sad is that they're trying to drive people into making bad decisions. Buying a new car is fun, sure, but it's potentially the worst investment you can make. Cars are depreciating assets, and they lose 15% of their value just driving them off the lot. Dumb. And in an economy like this, the last thing people need to do after losing their asses on their house or investments is to turn around and lose on their car.

But we can all thank Kensian economics for getting us here. The people don't want to spend money, businesses don't have any money, so the solution is that the government will take your money and spend it for you.

Buy! Buy! Buy! Now's never been a better time to buy a Ford!

Ha. No it's not.

Guest's picture
lizriz

It would take one hell of an incentive AND a majorly innovative vehicle to get me to take on a car payment. Don't get me wrong, I'd *love* a shiny new car, but my car runs fine, and I just don't want to take on a car payment.

Guest's picture
Charley

We will possibly take advantage of this, but only because we will be in the market for a car very soon. We are still driving the car we bought new six years ago, and plan on keeping it, but have since had two kids who are almost school age, so driving only one car is going to get harder and harder. We buy new because we've owned a couple used cars that ended up with big problems that weren't worth fixing after only a few years. I'd rather buy something affordable (note: we drive a KIA that cost all of 17 grand, and was paid off after less than three years), maintain it the way it is supposed to be maintained (something you never know about when you buy used), and get rid of it when it starts having the huge problems our other cars did. Also, we have the cash on hand to buy something new. So, yeah, I'd look at a domestic car with some tax incentives if it met our needs and budget. I wouldn't say that is the reason we'd buy it now, though.

Guest's picture
Bettie

Yes, we looking at a new car for me. Hubby has a truck that is 3 years old, and paid off after 1 year. So he is good for several years. My Saturn, which I love is now 8 years old. We paid it off also after 1 year. It only has 60,000. I live close to work, grocery stores, malls, etc. We contacted our Credit Union and interest would be 2%. Can't kick at that. Our goal again is to have it paid off in one year, which it will be. The prices right now are just too good for what I am looking at to not upgrade. Again would probably be another 8 years before we did this again.
So, yes this is definately the right time for us, maybe not for everyone, but for us. Hubby has a city job with 22 years in. It is a BIG city and they would have to shut the whole shabang down for him to not have a job. My job is secure for at least this year. But we would stil be comfortable with just his income. We are one of the lucky few and yes, we do count our blessings. So far no one in either side of our families has been affected job wise. So with prices of cars where they are now it it the perfect time for us to invest in a new car.

Guest's picture
Rosa

Just to get this out of the way: it doesn't have to be warm to bike. My partner bikes to work as long as it's above zero, and we know people who bike well below that. And, where you live is a choice. If you plan on biking, live near where you work, end of story.

But we have a car anyway, for long trips. If we needed a new car, we'd buy one. We don't, so we won't. The price/incentives/stability of the automaker don't really affect our buying decisions.

I'm with Lucille - maybe this recession will put the excess producers who depend on debt-fuelled vanity buying out of business, and leave us with a level of car production to support people buying at a lower level.

Guest's picture
Carrie

I'm also a proponent of driving my car into the ground, and then buying used when the time comes. Who needs the stress of trying to keep a new car "new"? But I read yesterday in the Globe and Mail about an insurance policy that lets you simply return your car to the lot and stop making payments on it should you lose your job. The Walkaway program is available at many dealerships in the US and Canada. But I wouldn't use it, or any of these other stimulus deals, as an excuse to rush out to the dealership.

Guest's picture
D.

I've got two vehicles that are both 20+ years old. A Corolla with 265k miles on it and a Suzuki Samurai. Currently, they are both eligible for the California buy back program for $650 each. If I was able to get additional incentives, I would certainly buy a new car. Even though my typical car purchase is a vehicle that's at least 4 or 5 years old (to lessen the depreciation expense), I'd buy new since it would be a good time to upgrade these vehicles.

Fortunately, I'm in good financial shape with a stable job situation so I could finance it (if rates are good) or buy it outright if additional discounts are available.

Seems like I'm in the minority amongst those posting comments.

Guest's picture
Bobby

I would be happy to take a few thousand for my '78 van. Problem is I don't think I could find a new car for under my spending limit of two thousand. Only had the van 15 years, still works and does what I want it to do.

Guest's picture

Just paid one off and the other will be paid off by year end. They can keep the new ones . . .

Guest's picture
Guest

Yup- this economy is getting us out to buy - we figured we would need to replace our 9 yr +, 100,000 miles + cars in the next 2 yrs anyway.

Just got a honda for over 35% off sticker and with prices as such, I am looking at far "fancier with more saftey features" cars than I thought possible for my budget of about $ 20-22,000... most initial offers from dealers on cars I am interested in have been over $6,000 off sticker to start.

the dealers are willing to move the cars- they are hurting- most of teh time we were the only customers in the place.

we are fortunate to have very stable jobs and the foresight to drive the cars into teh ground before jumping into a new one.

I'm 40, been driving my own car since 18 and this new car I am shopping for now is only the 3nd car I will have had.

Guest's picture
Guest

Even though I hate it, my Husband makes us RUN OUR CARS TO THE GRAVE!!!!

And it's smart, actually.

When we buy a car, we're not looking to buy something with good trade in value.
We are looking to run that car till it can't be fixed anymore.
Hopefully that is PAST the 5 years it takes to pay it off!

There's just something great about paying that last payment on your car, and getting the title in the mail.
You ACTUALLY OWN that car!

The temptation comes every once in a while, don't get me wrong...I'd LOVE to get a new car, with all the new bells and whistles that always seem to come out RIGHT AFTER you buy a car!

But...there's more to life than driving a shiny new toy.
It's JUST to get you there and back, really.
After you step out of it, it matters what YOU look like...not what your horse and buggy look like, right?

We bought a new Toyota minivan in 2004. Hopefully it's got at least another 5 years left after we're done the payments!
That way, we can LIVE LARGE, with our EXTRA $500 a month!!!!
Woooo hoooooo!

Guest's picture
Marcia

And we're in CA, so the tax bennie will be nice, assuming it doesn't phase out at a certain income level.

I enjoy reading about people driving their cars 20+ years. We just bought a Honda, so I hope it lasts that long. Sadly, we replaced the Prizm (Corolla) as it was totaled in an accident (hubby and child were fine).

I figure with an '06 Toyota and an '09 Honda, we won't need to buy a car for awhile. Maybe we'll send our 3-year old off to college in one of them.

Oh, and I ride my bike to work fairly often (depending a bit on my schedule and the weather). I have ridden the 10 miles in less than 40 degree weather. It was chilly, but with a scarf, gloves, and thick socks, totally doable.

I have good decent bike paths and roads though. If I lived in the country (like my family) - no way am I riding my bike on narrow roads where people drive 55.

Guest's picture
Guest

Ill take a 370z plz

Guest's picture
Guest

depends on the insentive. 5K goes a long way toward buying a stripped down car that can be found on sale for 10K. Plus interest rates around 5%. I am looking now to buy a clunker and hope the bill will have no rules on how long it was owned. I will buy a big rust bucket 4X4 truck fthat runs for about 500. If the government nixes the trade in I will keep it for hauling and winter driving.

Guest's picture
Bob Jeanmenen

Let's not forget the great Bill Clinton era had a Republican Congress. We deserve what is happening to us as we have given (via the election process) total control to one party. We are very close folks to form of government never seen in this country. With the left and right so far apart. We are approaching socialism, and in some ways fascism, as our government moves to make decisions that have no historical facts to back them. We can fix this mess by voting in those who would question every idea proposed by one party. Less may get done by government; allowing private enterprise to get it done right. I have traveled the world and the U.S.A. is the best place in the world. No place else even comes close, so why do we allow others to suggest we should be like any other government? Our system works, let's not allow the media and big government to ruin it.

Guest's picture
Guest

Hmm. Not even close to Fascism. Have you ever read a history book or anything resembling a Poli Sci book? Our private sector has failed us. Can't you see that? The govt is getting involved because that's all we have left. Wake up!

Guest's picture
Guest

Saying the private sector "failed" us is a useless blanket statement. You have been hoodwinked by Obama's "pretty" words. He has you convinced we need a big governemnt to tell use what to do, and to take our money and redistribute it to the lazy. NO THANK YOU!!! You democrats need to realize that if you give money to poepl for free they will have no reason to work harder to improve their own lives.

Guest's picture
Patriot

"Hmm. Not even close to Fascism. Have you ever read a history book or anything resembling a Poli Sci book? Our private sector has failed us. Can't you see that? The govt is getting involved because that's all we have left. Wake up!"

Here is the definition of fascism:
A political regime, usually totalitarian, ideologically based on centralized government, government control of business, repression of criticism or opposition, a leader cult and exalting the state and/or religion above individual rights.

This definition should include a picture of the United States, because we define fascism.

You're the one who needs to wake up, my friend, and I say that not as an insult, but as the most sincere of warnings. The private sector has not failed us at all, as there has not really been a private sector for quite some time due to all the federal government's regulation on business, not to mention the federal reserve's control over the value and distribution of our "money". I hate when people say the free market has failed us. Big government killed the free market.

Do some research, and get yourself a copy of the Constitution and Bill Of Rights.

Guest's picture
Susan

Why are these responses so much about pulling up bootstraps and running cars into the ground? President Obama is offering a chance for people like me, who have been driving my car, a Geo Prizm, 12 years old with a dent in the back, to trade it for several thousand dollars more than its worth so I can buy an American car which is most probably at 0% financing and a rebate right now anyway, so our payments will be low. This sale will help the failing Detroit companies which in turn will help our economy. The proposal is only for cars that get over 27-30 mpg,that are 8 or more years old so it will help the environment. Mostly, for us who have been driving our cars into the ground, never again will we have to crank open our windows...it's power for us forever...yeehaw!

Guest's picture
Guest

Yes! Germany is doing it, Japan is considering it. Instead of throwing money at the auto industry, why not at the consumers to get new cars? The enviroment, the economy and consumers (for a change), win. The tax rebate alone only helps the wealthy. I made the mistake of working for a religious nonprofit. When I was assaulted by one of their clients, it left me with a pretty unemployable chronic injury and sub-poverty-level disability payments. I don't pay taxes, so what good would a rebate do?
And for those who think I don't deserve to have any money to buy a car, just let me say that I have saved every penny, gotten gifts in cash, for years. I can't afford a life, but I thought I should have been able to afford a used car. Apparently not.

Because people don't want to assume payments and buy new. Prices for a good used car are far above Edmunds/Kelly Blue Book values. The difference between a new car and a used car can be only a couple thousand. I have $9000 maximun for another car to replace my 17 year old about-to-die Honda Accord. I can afford the used cars which Autocheck has listed as "frame damage" or even "fleet and/or livery use". But unless I want to go back to the 90's, forget it. When you get too old of a used car, you immediately wind up shelling out money. I put in timing belts, water pumps, axles within the first 2 years of having the Honda.

So, yes, bring on the stimulus, the trade-in of older cars.

Guest's picture
Guest

why are we supporting the Japanese market during our failing economy? Educate me please! My V6 mustang with higher mileage than my Toyota's first engine, or second, or third still runs better than the Toyota did when I sold it. Hondas and Toyotas aren't bad cars, they just arent any better than GM or Fords. Don't beleive it, read it. Look up the Malibu vs the Camry or the Fusion vs the Camry or the Accord.

Guest's picture
Guest

Are there any corvette doing 30 miles per gallon ?

Guest's picture
Guest

Anything that keeps this American industry going is a good thing. To all the negative people out there I have a question for you. Why is it ok to bailout all those crooks on wall street that got us into this mess but when it comes to manufacturing its not ok?? I tell you why because you people are all brain washed by the anti-union B.S. Tradesman and unions built this country not the suits on wall street. This country was built by men and women that went to work with a lunchbox in their hand not a breifcase. Too many people forget that. If we loose this industry we will all be working for places like Wal-Mart making 8 bucks an hour is that what you want??

Guest's picture
Guest

No ....

Same old story ,, WE are going to pay for it ...

Todays paper ,, says they will figure out where the funds come from ,,later .. Well that sounds typical govt..

I bet all the communist leaders ,, are laughing ...

I don't mind paying taxes ,, but this is getting crazy..

We can't keep paying everyone w/govt funds ..

Guest's picture
Unwilling Philanthropist

I just bought a 1992 Dodge Dakota with 170k miles for $100 bucks. Runs great, looks great, got a great deal, and insurance is extremely cheap. And I paid for it with my $100. So I will not be buying a new car. Your welcome, though, to all the others that are using my tax-payer money to buy a brand new car that will depreciate in value 20% the first year. BTW...how is losing 20% a year on an asset an investment? And, if there is anything else I can do for you to get your unintelligent, lazy, excuse-making behind off the couch, please just let me know. I've been competing and winning all my life-sports, education, work, women, and life. You can always accept handouts from people like me to improve your circumstance, but you will never achieve what I can. And I wouldn't trade that for anything.