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Thread: US car dealers take a huge 'double cross' re Cash for Clunkers ...

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    Default US car dealers take a huge 'double cross' re Cash for Clunkers ...

    (snip)"According to Automotive News, NHTSA -- the government bureaucracy responsible for administering the CARS program -- conducted a webinar for automobile dealers last Monday. During that session, retailers were reportedly told that the federal rebate cash they'd be receiving would be non-taxable. Now, for the buyers trading in so-called clunkers, this is indeed the case. Unfortunately for car dealers, however, it appears that NHTSA got the explanation wrong. In fact, AN reports that the IRS issued an advisory bulletin yesterday confirming that yes, the federal rebates dealerships receive for CARS trades count as taxable gross income.

    Apparently, some retailers believed that since their customers weren't getting taxed, neither were they. And if the Automotive News account of events is accurate, it's fairly obvious that NHTSA didn't fully understand the tax implications either when they conducted their webinar. As a result, some dealer smiles around the country are likely turning into frowns this weekend. The money line in the AN piece comes from Dick Heider, a dealer accountant who points out that the CARS cash simply counts as a normal payment to the retailer, and thus is taxable. "What you are dealing with are people who don't understand accounting," he says. Apparently, on all sides of the equation. "(snip)


    ^^^ in other words, for every $3,500 Cash for Clunkers deal that US new car dealers have closed, they will wind up owing an extra $1,000+ to the IRS !! According to my little brother, this $1,000+ in additional tax may exceed the total dealer profit margin on many low priced models.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    I don't understand your math. Part of the payment for the car is coming from the government. The part that is coming from the customer is taxable, right? Why should any part of the payment be tax-free? It's a straight rebate for the customer....for the dealer it should be treated like any other payment for a car. *shrug*

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    ^^^ actually it works like this. In a normal new car sale with a trade-in, the dealer must report as income the total 'cash' payment of the new car purchase price plus the used car sale price - less the 'cost' of the new car. So in the case of a normal new car sale involving the trade-in of a 10 year old car, the dealer would wind up reporting perhaps $12k of new car sale price plus $1k of 10 year old car disposal value = $13k revenue against an $11k 'cost' of the new car = $2k in taxable income to the dealer. In terms of net profit, at a 33% tax rate the dealer would pocket $1,333.

    But under the Cash for Clunkers program, it works like this. The new car is sold for the same $12k, but the dealer also receives $3.5k from the gov't in the form of a Cash for Clunkers rebate which must be applied to the new car sale price = $12k in total gross revenue against the same $11k 'cost' of the new car = $1k in gross income to the dealer. In terms of net profit, taxable income is now the $1k markup over the new car's 'cost' PLUS the $3.5k in gov't rebate = $4,500. At a 33% tax rate this equals a $1500 tax bill against a $1000 gross profit i.e. a $500 LOSS.

    The 'root of the problem' is that the government program has artificially inflated the 'valuation' of the clunker trade-in vehicle for purposes of the new car purchase, but the dealer doesn't actually see any of that inflated 'valuation' in terms of net profit.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    Sounds like the housing program. That too had a habit of turning into tax money for the local and federal government in the end.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    Sounds like an unfortunate reporting error to me, not some nefarious Obama-initialed subtrefuge, as is implied here. If dealers knew this, they could work out reasonble deals for themselves.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    Quote Originally Posted by threlayer View Post
    Sounds like an unfortunate reporting error to me, not some nefarious Obama-initialed subtrefuge, as is implied here. If dealers knew this, they could work out reasonble deals for themselves.
    How ? With whom ? The Feds ? What leverage would the dealers have to work out "reasonable" deals for themselves ?
    Many dealers are bitching now that they haven't collected on the rebates.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    not some nefarious Obama-initialed subtrefuge, as is implied here
    ^^^ who is implying ? Quoting my earlier snippet ...

    "NHTSA -- the government bureaucracy responsible for administering the CARS program -- conducted a webinar for automobile dealers last Monday. During that session, retailers were reportedly told that the federal rebate cash they'd be receiving would be non-taxable. Now, for the buyers trading in so-called clunkers, this is indeed the case. Unfortunately for car dealers, however, it appears that NHTSA got the explanation wrong"

    In other words, either the NHTSA is run by a bunch of brain-dead political appointees who don't have the phone number of US gov't accountants and the IRS, or the NHTSA deliberately misinformed the car dealers. Either way, the bottom line is that, after car dealers have sold tens of thousands of new cars under the Cash for Clunkers program, the NHTSA and the IRS are telling them AFTER THE FACT that the official tax information provided to them was incorrect and that, as a consequence, they'll be lucky to turn any profit whatsoever on any of their Cash for Clunkers deals.

    And this is even more aggravating since the dealers have been put in a position of ( using the $12,000 new car example again ) owing $11,000 to the car manufacturer, receiving $8,500 from the car buyer, but NOT receiving the $3,500 incentive payment owed to them by the NHTSA. This leaves the dealer $2,500 'in the hole' to the car manufacturer as well as another $1,500 'in the hole' to the IRS, with quarterly payments to both coming due in the middle of September.

    Or if you prefer a more 'objective' analysis, I recommending using the ever famous technique of 'follow the money'. Who actually benefitted from the Cash for Clunkers program, and who took a screwing ? Hmmm lets see ... the major beneficiaries were the automakers ( i.e. auto workers who typically vote democrat ) and the low income new car owners ( who also typically vote democrat ). The screwees were the car dealers ( who overwhelmingly support republicans ).

    ~

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    Quote Originally Posted by Eric Stoner View Post
    How ? With whom ? The Feds ? What leverage would the dealers have to work out "reasonable" deals for themselves ?
    Many dealers are bitching now that they haven't collected on the rebates.
    As one who knows something about new car deals, your "discount" can be adjusted to compensate for the tax implications. They're all on the same basis after all, so all dealers participating hav the seme chance.

    You could have figured that out, I'm sure, if you had thought about it more.

    Yes, the delay is a problem, but it is a pretty massive effort by a massive beaurocracy. Not too surprising, but a cash flow problem to many.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    "^^^ who is implying ? Quoting my earlier snippet ..."

    ^^ the article as posted
    Last edited by threlayer; 08-26-2009 at 10:23 AM.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    As one who knows something about new car deals, your "discount" can be adjusted to compensate for the tax implications. They're all on the same basis after all, so all dealers participating hav the seme chance.
    Problematic on two counts. The first is the unspoken basic tenet of the cash for clunkers program i.e. replacing former deep factory and dealer discounts with a $3,500 cash payment from the government. While appearing to be a 'better deal' from the standpoint of a new car customer trading in a clunker, from an accountant's standpoint there is far more gross paper profit involved.

    Second issue is that the $3,500 gov't check is a fixed amount of 'income', but a variable percentage of the car's sale price relative to the sticker price of the particular model being sold. Thus expensive Honda and Toyota dealers took less of a whammy than inexpensive Chevy and Hyundai dealers.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    We all know the issues, such as salex tax, income tax and the general dislike of any Obama-initiated project to conservatives. The rest can be handles by simple mathematics -- don't give a simple %-wise discount -- have it stepped. That was usually not the case even before Obama was on the scene.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    Quote Originally Posted by threlayer View Post
    We all know the issues, such as salex tax, income tax and the general dislike of any Obama-initiated project to conservatives. The rest can be handles by simple mathematics -- don't give a simple %-wise discount -- have it stepped. That was usually not the case even before Obama was on the scene.
    Just because it has Obama's name on it means nothing to me. I voted for the guy.
    Silly me, I didn't know he'd defer to the parochial dummies in Congress to initiate as well as implement policy. I knew he would foster some policies that I wouldn't like or agree with, but foolishly thought that he was smart enough and enough of a pragmatist to be an improvement. In defense and foreign policy, I think he's been very good. It's his economics that suck.
    Last edited by Eric Stoner; 08-25-2009 at 10:56 AM.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    Quote Originally Posted by threlayer View Post
    As one who knows something about new car deals, your "discount" can be adjusted to compensate for the tax implications. They're all on the same basis after all, so all dealers participating hav the seme chance.

    You could have figured that out, I'm sure, if you had thought about it more.

    Yes, the delay is a problem, but it is a pretty massive effort by a massive beaurocracy. Not too surprising, but a cash flow problem to many.
    "Adjusted to compensate" by WHOM ? And AFTER the fact ? I missed the part of the "$ for Clunkers" program that provides for "do-overs" or lets everyone go back to the status quo ante.

    Melonie's right. This was NOT designed to help the dealers. It was designed to create artificial demand for new cars and it worked. GM had to lay on extra shifts. They benefitted. The UAW benefitted. Low income car buyers benefitted. And the dealers and their EMPLOYEES took it in the neck.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    So many of us have been saying for years the problems in the economy are structural. Right now all the elements in the economy that have something to keep, aka the troublemakers (I will just flat out say it), are doing everything they can to keep the status quo. They are doing it in the banking industry, they are doing it in the lobbying industry, they are doing it in the media. Worse yet, we don't really know how to define what the new structure should be other than "I got a job!"

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    ^^^ Deo, you left out the unions !

    - unionized auto workers got rewarded with the 'cash for clunkers' program

    - unionized appliance workers just got rewarded with a 'clunkers' program of their own

    - unionized gov't employees, teachers and construction workers got rewarded via the 'stimulus' package

    - unionized pharmaceutical workers and hospital workers were due to be rewarded by the national health care package (if they can pass it now )

    economically speaking, if there is any 'change' underway, it is a change back to FDR's policies of the 1930's !

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    Quote Originally Posted by Melonie View Post
    But under the Cash for Clunkers program, it works like this. The new car is sold for the same $12k, but the dealer also receives $3.5k from the gov't in the form of a Cash for Clunkers rebate which must be applied to the new car sale price = $12k in total gross revenue against the same $11k 'cost' of the new car = $1k in gross income to the dealer. In terms of net profit, taxable income is now the $1k markup over the new car's 'cost' PLUS the $3.5k in gov't rebate = $4,500. At a 33% tax rate this equals a $1500 tax bill against a $1000 gross profit i.e. a $500 LOSS
    I'm not following something here. I would have expected the purchase price for the customer to be lower in with the clunker. That is:

    Normal customer buys $13k car and dealer gives $1k for trade-in means customer pays $12k. Dealer sells car for $1k means $13k revenue total.

    Clunker customer buys $13k car. The dealer should give a minimum of $3.5k for trade-in. Customer pays at most $9.5k. Dealer gets $3.5k for rebate means $13k revenue total.

    I don't think it would be the case that the dealer would give the same $1k trade-in value with the clunker. The whole point was that the customer was going to get so much more for his trade-in than he normally would.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    ^^^ the point you are missing is the real world taxable 'net profit' to the dealer. In your first example, the dealer receives $12k in cash from the buyer, less an $11k factory cost ... with the physical trade-in disposal being open to various machinations. In your second example, the dealer receives $9.5k in cash from the customer versus the same $11k factory cost, plus a $3.5k taxable 'gift' from the gov't to ( supposedly ) make up for the shortfall, with no opportunity for trade-in machinations. But the taxes due on the $3.5k 'gift' are somewhat independent of the overall profit or loss on the entire transaction.

    In other words, with a 33% effective tax rate, the amount of gov't 'after tax' rebate money that can actually be applied against the shortfall between customer payment and factory cost of the new vehicle would only be $2,333 - resulting in a pre-tax profit on the entire transaction of $ 1167 = an after tax profit of $778. In contrast, prior to clunkers, the $12k customer cash payment plus $1k used vehicle disposal price would result in a pre-tax profit of $2000 = an after-tax profit of $1,333 . Of course, if the dealer had marked down the $13,000 sticker price to $12,200 or so, under clunkers the entire transaction would result in a loss !

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    Quote Originally Posted by threlayer View Post
    As one who knows something about new car deals, your "discount" can be adjusted to compensate for the tax implications. They're all on the same basis after all, so all dealers participating hav the seme chance....
    Clarifying:
    If dealers had known about all the facts, they could have compensated for them during the deal. For some deals that income tax provision could have made the difference between profit and loss. I'm sure they didn't need any more losses, but that SNAFU is Automotive News's fault to a large extent. The rest of it is the dealers not checking up on the details. As long as the govt documented in time the provisions, that part is not their fault.

    I say you could have read, thought about the post, and then expressed your outrage if any.
    Last edited by threlayer; 08-26-2009 at 09:49 PM.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    Quote Originally Posted by threlayer View Post
    Clarifying:
    If dealers had known about all the facts, they could have compensated for them during the deal. For some delas that income tax provision could have mad ethe difference between profit and loss. I'm sure they didnt need any more losses, but that SNAFU is Automotive News's fault to a large extent. The rest of it is the dealers not checking up on te details. As long as the govt documented in time the provisions, that part is not their fault.

    I say you could have read, thought about the post, and then expressed your outrage if any.
    It wasn't Automotive News that screwed up. All they did was report the screw up by the NHTSA, a GOVERNMENT agency that gave out WRONG info as to the tax treatment of the rebates for the dealers.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    Yes. I misread it in my enthusiasm to respond.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    Quote Originally Posted by threlayer View Post
    Yes. I misread it in my enthusiasm to respond.
    Join the club. I've been guilty of the same on occasion.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    You're telling me? LOL
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: US car dealers take a huge 'double cross' re Cash for Clunkers ...

    Quote Originally Posted by threlayer View Post
    You're telling me? LOL
    We're all human and I have depths of fallibility as yet unplumbed.

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