Doc, have you ever crunched the numbers on that kind of scenario to determine which "option" is best for the buyer?
I've not purchased a new car under that kind of system, so I don't know. I figure, first of all, that in order to qualify for a "cash rebate", they're going to charge you full MSRP, minimum. So the markup is already huge, as we know.
And what kind of difference would if make to shoot for the lowest interest rate - 0% being bandied about these days - and pay the full MSRP?
Coughing up a substantial down payment helps tremendously, of course, but what about the typical "Cash for Clunkers" buyer who trades in his paid-for beater in exchange for buying a car and financing the whole amount? How does that kind of thing stack up?
Well....it always depends on your financial situation, but taking the rebate on the best deal that you can negotiate with the dealer is generally the cheapest way. remember that we are dealing with TWO markups here, the manufacturer's profit margin (where the rebate and/or 0% financing comes from), and the dealer's markup, down from MSRP.....which, depending on the vehicle, varies from 12 to 15%. If you have good credit, money for auto loans is cheap right now......our credit union is offering 3.5% loans for 48 months ....the rates increase significantly for 60 months. Therefore taking the rebate, and obtaining outside financing (for the shortest period possible) for the balance is generally the best transaction.
Regarding "Cash for Clunkers", the problem with the bulk of these people is that they applied their $3500 - $4000 government subsidy as the down payment for the deal, and most of them bought cars in the $25,000 range, MSRP, so they have a note on the car that is at least 20 grand.......now most of them, due to the fact that they were driving a "clunker" to start with, are of limited means, so they likely financed the entire $20,000 over the longest possible period, to keep the payments low, which is typically 60 months (although I've heard of 72 month loans which make the situation much worse) ........loans of this type, on this amount mean that the buyer is "upside down" on the new car when the "tail lights go across the curb", meaning that when he/she drives his new car off the lot, the first year's depreciation lowers the value of the car to less than the customer's loan balance, and this condition will just get worse as the ownership years go on, up until about year five......so the customer is now stuck......
.....Stuck with a new car that he owes more than it is worth.
.....Stuck with a payment that, combined with insurance, taxes, and license is a budget-buster.
.....Stuck with a situation that can only be resolved by repossession, refinancing at higher cost, or bankruptcy.
For the particular consumer subset that "Cash for Clunkers" was targeted toward, it was/is a
lose, lose situation, and there is fine print in the government rebate contract that won't allow them to sell the vehicle for a fixed period of time,
or they have to pay the government rebate money back.....therefore they are ROYALLY SCREWED by the Democrats.....and many of them are just coming to that realization......they will likely never place the blame where it belongs however......
doc