Clearing Up Tax Rules on Clunkers Cash

Recently, rumors have sprouted on the Internet that consumers who took advantage of Cash for Clunkers will have to count the program’s rebate as income and pay taxes on it.

For the record, this is not true. The Internal Revenue Service has said again and again that “the credit is not income for the consumer.”

However, the rules do not address state tax laws, and the National Highway Traffic Safety Administration, which administered the program, has no authority to tell the states that they may not consider the Clunkers money taxable income. You’ll have to check with your own state taxation office to be sure, but the good news is that the New York Times reports the tax departments of Connecticut, New Jersey and New York have all said they will not tax the vouchers.

Correcting the Chatter: For Consumers, No Federal Tax Due on Clunkers Rebate (Wheels)

Used-Car Prices Dipping Back Down

The Cash for Clunkers program definitely led to higher used-car prices over the past few months. In fact, wholesale prices for used cars hit an all-time high in September; this past December, used-car prices were at a record low.

Last month, overall prices dropped 0.9% after factoring in a seasonal adjustment. This is a welcome correction, analysts say. While wholesale prices don’t instantly correlate to prices on lots, they should have an impact relatively soon.

It seems that alarmists once again sounded warnings because of the September spike after Cash for Clunkers, and one month later we’re seeing a move closer to the norm.

Wholesale used-car prices show first decline since December (USA Today)

Oregon Clunker Customers Get Scrapping Checks

Some Oregon car buyers who traded in their old vehicles for more fuel-efficient models under the Cash for Clunkers program got an unexpected bonus check in the mail.

In addition to the $3,500 or $4,500 discount they received on their new car, dealerships like the Ron Tonkin Family of Dealerships sent checks to customers for the scrap value of their trade-ins. The government required that car dealers tell customers what their old vehicle’s scrap value would probably be but didn’t specify where the money should go. It said dealers could keep $50 of the cash.

Ron Tonkin told the Oregonian that although most of his customers had no idea the checks were coming, the dealership cut and mailed checks totaling roughly $200,000. Tonkin’s dealers were getting an average of $375 for the clunkers, so they deducted the $50 and mailed the rest to customers. It sold 681 new cars under the program and mailed out checks to those buyers averaging $325 apiece.

Other Oregon dealerships like Wentworth Chevrolet and Carr Chevrolet in Beaverton said they would send similar checks to their customers. All told, 253 Oregon dealers received $36.8 million in Clunker payments from the government.

This raises the question, though: Have dealerships around the country been following a similar protocol and mailing checks to customers? Or have they been pocketing the full value of the scrapped vehicles?

Some Auto Dealers Mail Clunker Customers Refunds (OregonLive.com)

Cash for Clunkers Boost Fuel Efficiency of New Cars in August

Cash for Clunkers helped boost the average gas mileage of new cars and light trucks to a record average of 23 mpg in August, according to Ward’s Auto Fuel-Economy Index. This beats by 1% the previous high in July when the program began, and it represents an 8% gain from a year ago when the average was 21.2 mpg.

Ward’s calculates the data using reported U.S. light-duty vehicle sales, engine options and fuel economy ratings.

Overall, Toyota had the best average at 26.9 mpg, which relied mostly on sales of the Camry and Prius. The Camry had the second-best sales month of its quarter century on the market; the Prius nearly sold out by mid-August.

Kia was the runner-up with a 25.1 mpg average, with Honda close on its heels at 24.9 mpg. The 2009 Jetta TDI helped push Volkswagen’s average to 23 mpg for fourth place, and BMW rounded out the top five with 22 mpg.

A total of 34,331 hybrids were sold, which is the second highest volume ever sold in a single month.

August Light-Vehicle Sales Achieve Record Fuel-Efficiency Rating (Ward’s Auto)

Bentley Destroyed in Cash for Clunkers Program

A 1997 Bentley Continental R — a car that when new sold for $250,000 — was destroyed in the Cash for Clunkers program, according to data gathered by the federal government and discovered by the Detroit Free Press. Keep in mind that the Bentley’s owner only got a $4,500 credit at best.

This trade-in, obviously, makes absolutely no sense. According to the program’s rules, the vehicle had to be drivable, which means the Bentley was probably worth a lot more than $4,500. As Howard Krimko, a former chairman of a luxury car club, told the blog Wheels, “The seats for the car would be worth more than that.”

What’s even more mystifying is that dealers had the option of buying the car outright. Why wouldn’t they just take the car? The report listed no details on the condition of the car or where it was turned in, so curious parties will be maddened until someone steps forward and identifies the party responsible. Could this trade-in be illegitimate or even made up?

A few other vehicles of note that owners scrapped through the program include a 1997 Aston Martin DB7 Volante (that sold for $135,000 when new) and a 1987 Buick GNX (one of 547 ever built).

Exotic Clunkers Also Got the Crunch Under Program (Detroit Free Press)

Dealer Turns Clunker into Trade-In, Upsets Customers

California couple Dan Hoang and Tara Bui turned in their 2001 Nissan Xterra using the Cash for Clunkers program to get the low-mileage vehicle off the road. A few weeks later, however, they discovered that the dealer had simply put it up for sale as used car.

The dealership avoided breaking the law because it never asked for a reimbursement credit from the federal government’s program. Hoang and Bui were not happy that the Xterra, which they said averaged 17 mpg, would still be on the road.

“One of the major reasons for me to bring the Xterra to the car dealer was due to the program’s requirement that all clunkers were to be destroyed,” Hoang wrote in a complaint to the U.S. Department of Transportation. “If I had known that the dealership was using the car as a trade-in, then I would not have brought the car in, but simply kept the car for another year or two.”

The Department of Transportation said that the CARS program has no jurisdiction over the dealership’s decision since it never requested the government credit.

The couple received a $3,500 credit toward a new VW Jetta, and the dealer is selling the Xterra for $5,995.

Couple Shocked to Find Their Clunker is for Sale (OC Register via Consumerist)

Cars.com Survey: Majority Want More Cash for Clunkers

In an online survey conducted for Cars.com, 55% of recent car buyers and current car shoppers said they would like to see the federal government’s Cash for Clunkers program extended. Of the respondents, 42% said they thought the program was successful, even though only 10% of those surveyed had actually taken advantage of the program.   

Of those who took advantage of Cash for Clunkers, 37% said they were shopping for used cars and changed their mind to buy new due to the government incentive; 30% said they weren’t considering a purchase of any kind, but the program was too good to pass up. Another 24% said they were going to purchase a new car but waited for the program to go into effect.

The Cars.com survey was conducted online in September with a random sample of 1,056 people who had either bought a new or used car in the past three months or were planning to buy one in the next six months.

Dealer Supplies Hit Lowest Levels in Over 30 Years

Cash for Clunkers gave a much-needed boost to the auto industry but has left dealers with their lowest inventory levels since 1975. Still, this is not a terrible problem to have.

The number of vehicles on or being delivered to dealer lots fell to 1.4 million vehicles at the end of August. That’s 49% less than August 2008, according to WardsAuto.com.

While consumers might lose out during the month of September as dealers pull back on incentive spending and the number of model choices is limited, low inventory marks a win for auto workers. The cars and trucks on dealer lots have hit their lowest levels since 1975, and this means auto plants like Ford’s Wayne, Michigan Assembly Plant have been working overtime to churn out the top-selling Focus.

Despite low supply, demand is expected to also shrink, following the end of the federal Cash for Clunkers program and because September is normally a lower sales month than August in a typical year.

Less Supply Is Good News (Detroit Free Press)

Car Shopping Remains Steady After Cash For Clunkers

One of the theories bandied about by anti-Cash for Clunkers groups was that once the stimulus program ended, car shopping would plummet. So far that has not been the case.

Activity on Cars.com has declined since Cash for Clunkers ended, but the current level of searches and interest for new cars on the site is equal to what the site experienced before the government program went into effect. Used-car activity is up 2 percent compared to pre-Clunkers levels. During the program, used-car interest was up 6 percent. That uptick illustrates how the overall car market was improving, not just new car sales spurred by the Clunkers program.

“It’s clear from looking at the traffic on our site and the resulting vehicle sales reports that the program solicited its desired response in new car shopping and certainly had a halo effect on the used car market,” said president of Cars.com Mitch Golub.  “We believe this program helped to revitalize the marketplace and brought consumers back to market in a big way.”  

Prius Sales Outmuscle Muscle Cars in August

It would probably be best if while reading this blog post you listen to something clichéd like Bob Dylan’s “The Times They are A-Changin’.”

While muscle-car enthusiasts will comb over the meaning behind the Chevy Camaro beating the Ford Mustang in sales for the third straight month, we couldn’t help but notice that the Toyota Prius beat the August sales for the three staple muscle cars — including the Dodge Challenger — combined.

With an assist from Cash for Clunkers, the 50-mpg Prius moved 18,886 units in August compared to 8,680 Camaros, 6,289 Mustangs and 1,132 Challengers (a total of 16,101 units).

The Prius also outsold the reliably robust Dodge Ram (17,514 units in August).

Overall, the market share of hybrids reached 4.5% in August, according to the U.S. Department of Transportation. That’s up from 3% of all vehicle sales for June 2009 before Clunkers began.

2010|Toyota|Prius