Our clunker flunks the rebate test. Fortunately, it's a great time to buy. But that doesn't change the fact that a car is an expensive purchase.
The time has come to figure out what to do.
Now, I wouldn't normally purchase a brand-new car. I'm in the camp that can't stomach spending five figures on an asset that depreciates when I drive it off the lot. But given the state of our economy and the fact that my father relies on a pension from a U.S. automaker, I was thinking of bending my own rules this time.
Plus, in these topsy-turvy times, buying new can actually be cheaper than buying the same car used, according to research from car data website Edmunds.com. Because of dealer incentives and the fact that used cars are often financed at higher rates than new, it can cost less to drive a new model off the lot than the same used model from the year before.
When I heard about the Car Allowance Rebate System, known as the "Cash for Clunkers" program, I was thrilled. What timing! What luck! But a quick trip to fueleconomy.gov and I learned that while our old sedan might be a heap of junk, it's a heap of junk that gets a combined 21 miles per gallon -- a fuel economy rating too good to qualify for the $3,500 or $4,500 government rebates. Ironically, it's our "nice" car, the 2003 Ford Windstar minivan, that qualifies.
The program is effective as of July 1, but consumers are advised to wait until all of the details are ironed out by around July 23. Visit cars.gov for further details. Most car companies have also created easy-to-use calculators that have you plug in your current car's vitals. The calculators then spit out which vehicles would qualify for a rebate.
Scott Lambert, vice president of the Minnesota Automobile Dealers Association, hopes the buzz around the new program will give people the car-buying bug, even if they don't have a vehicle that qualifies.
So I won't get the $4,500 that I dreamed about. But with the auto industry in a slump, zero percent financing for borrowers with good credit and incentives of up to $3,000 cash back abound. Always shop for financing at banks and credit unions before heading to the dealer so you have a point of comparison.
I can also deduct state and local sales and excise taxes if I buy a new car through 2009, thanks to the American Recovery and Reinvestment Act. You don't need to itemize your deductions to benefit. For details, including income restrictions, visit IRS.gov and find IR-2009-60.
Now, if I do buy a new car, what do we do with our clunker?
One option is to donate it to charity. We itemize our donations and constantly see ads from charities offering to haul our car away in exchange for a tax deduction. For more information on donating cars, search for Publication 4303 at IRS.gov.
IRS spokesman Dan Boone said how much we could itemize depends on what a charity plans to do with the car. If the answer is sell it, I could deduct the vehicle's sale price. If the answer is use it for delivering meals or other charitable activities, I can deduct the fair market value according to book value adjusted for geographical differences or an appraisal. Fair market value also applies if a charity plans to sell my car at a reduced price to a family in need. (I wouldn't wish that car on anyone.)
Will dealers take trade-ins that they can't sell on the lot? Absolutely, said Lambert. "Everything is worth something. You'll always have some trade-in value," he said.
In our case, the Camry would fetch a whopping $525, according to an estimate from the NADA Official Older Used Car Guide. Ouch. But don't just go by the book value, said Diane Iten, owner of Stillwater-based Diane Iten Auto Broker. Iten, who is paid by the dealer if she brings in a sale, negotiates the price of cars for consumers and usually starts by asking for dealer invoice price minus any rebates the dealer would be reimbursed for by the manufacturer. She also shops around trade-ins to make sure her clients receive the highest value for their old cars.
After all of this, the question at the heart of this dilemma is whether we really need a second car at all. I know some will say this sort of thrifty debate is one reason why our economy's tank is running on empty. Maybe so, but our household finances will be much healthier if we hold out until we have more money saved for a vehicle.
My husband usually rides the bus or bikes to work and drives just a few miles per week. I can take the bus in a pinch. Our daughter will ride the school bus next year and our infant is taken care of in our home. That leaves my preschooler. Is it reasonable to assume he and his dad can walk two-thirds of a mile from school on a winter afternoon? To avoid a car payment, we'll probably give it a try.