TedCo Software Financial Matters Blog

“Cash for Clunkers” = CARS = Cash Allowance Rebate System

Interested in buying a new car? This might be a good time to do it, especially if you can take advantage of the “cash for clunkers” or CARS program.

The U.S. Department of Transportation has created the CARS.gov website to answer all your questions about the “cash for clunkers” program.

According to the CARS.gov website, CARS “is a $1 billion government program that helps consumers buy or lease a more environmentally-friendly vehicle from a participating dealer when they trade in a less fuel-efficient car or truck. The program is designed to energize the economy; boost auto sales and put safer, cleaner and more fuel-efficient vehicles on the nation’s roadways.”

Requirements for the CARS program

• Your vehicle must be less than 25 years old on the trade-in date
• Only purchase or lease of new vehicles qualify
• Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
• Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
• You don’t need a voucher, dealers will apply a credit at purchase
• CARS runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
• The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.

A couple of factors are at work in the new car business. Gas prices have been relatively low recently, automobile factories have cut production, and car prices are low in response to the old Law of Supply and Demand.

So is this a good time to buy a new car?

I have a bias I’ll share up front. It’s rarely a good time to buy a new car. New cars are expensive and they lose value as soon as they are driven off a new car lot. When you need to replace a vehicle, it almost always makes better financial sense to purchase a good used car. Now, with that out of the way, is this a good time to buy a car?

Simple answer: this is a good time to buy a car if you need to buy a car. Is the one you’re driving falling apart? Will repairs cost more than replacing the vehicle? Was it totaled after an accident? You’ll know the answer to those questions.

One thing that inspires some to buy a new car is the thought that one can save so much in improved gas mileage that replacing the current vehicle makes financial sense. But it doesn’t always.

How can you know if the savings in gas mileage might warrant purchasing a new car? Explore CarSavingsCalculator.com and play with the numbers. The answer for you will depend on several factors: the number of miles you drive each year, the cost of gas per gallon, the MPG of your current vehicle, the MPG of the vehicle you are considering, your current monthly payment and the monthly payment for the vehicle loan you are considering.

Here’s an example:

Suppose you average 15,000 miles per year and pay $1.95 per gallon in your current vehicle which get 18 miles to the gallon and your monthly payment is $320.00. You’re considering a new car that gets 28 miles to the gallon with a monthly payment of $360.00.

Is the new vehicle going to save you enough to make it a good deal?

Plug the numbers in at CarSavingsCalculator.com and you’ll discover the new car will save you $100.36 per year. That seems like almost an even swap.

But suppose, too, your current vehicle will be paid off next month. Should you buy the new car? That’s really up to you, but in this scenario, if you can wait even a year before buying a replacement vehicle, you can save $4,320.00 buy going just 12 months without a car payment. And that certainly shines a new light on the question about buying a new car.

I am not a politician. I am not an economist. I am a taxpayer who has only been to Washington on sightseeing trips.

I don’t understand. And I believe anyone who claims to understand our current financial circus is not being truthful with himself or others. There are so many data points that simply make no sense.

You’ve heard the phrase, “too big to fail”. It’s used in reference to an entity believed to be so large and necessary that all possible must be be done to ensure its continued “success”. The weekend bailout of Citigroup, Inc. is an example of an action to save a company believed to be “too big” to allow “to fail”.

The Citigroup bailout is reported to be worth $30 Billion. It happened quickly, over the weekend, and didn’t stir up a lot of questions on the national scene. Why not?

Recently, all the big three automakers wanted was $25 Billion. They didn’t get it. Congress held hearings. The CEOs of the auto makers begged. The autoCEOs drove home empty handed.

The chaos that seems rampant in the U.S. may be a consequence of what I believe is a corollary to “too big to fail”.

If you’ve ever interacted with the different departments of an insurance company (I recently talked by phone to more than a dozen employees of my insurance company during a three week period) you begin to wonder if the corollary to “too big to fail” isn’t “too big to succeed.”

What if companies (and economies) become too big to succeed and the manipulative efforts like those being attempted now are doomed to failure.

Politicians proclaim, “I believe in a free economy.” But they don’t. Google the name Bush with the phrase “free economy”. You’ll see that “free economy” has become a political cliche. There is no free economy. A “free economy” implies that those companies which are “too big to succeed” are actually allowed to fail. They would not be bailed out. Instead, perhaps in a future iteration, something better would be given birth.

Nature has an object lesson: no tree grows to the sky.

(Or “Why My Truck is Worth Only 5 Small Dents”)

Earlier this month in “Buy a New Car to Save on Gas?” I blogged about being a happy driver of a 2000 Ford F150. I wish I hadn’t.

Do Not Blog about Your Truck!

Just a few days after that article, the Pendulum of Irony swung up behind me and whacked me on the back of the head. (The Pendulum of Irony is related to the Pendulum of Justice that swings through the universe — we only see them swinging towards us half the time unless we look over our shoulder a good bit.)

I’ve learned you should not blog about your truck.

Why? Because your truck may catch fire. At least mine did. In a parking lot. By itself. While I was in my office.

The insurance adjuster tells me the cruise control switch started the fire which almost did enough damage to total it. A good friend ran out of his office with a fire extinguisher and put it out before the tire caught afire from the burning plastic fender which was dripping onto it.

When an adjuster is deciding to total your truck, dings from the past can cost you today. Ford and the insurance company are discussing which company will pay for damages. If my insurance company covers it, they’ve said they’ll total it.

It won’t be totaled because the fire damage alone is enough to push the repairs past 75% of the NADA value. I expect they’ll total my truck because of a small dent in the rear door. The small ding will be what pushes it over the edge.

What surprised me is that they put a repair value on the small dent of $1,325! When the insurance lady told me about the whopping damages assessed on the small dent I reminded her that it’s a truck, it’s supposed to have a dent.

There is no cracked paint in the dent. I can almost cover the entire dent with my hand. It’s low on the door and unnoticeable unless you’re accumulating damages so you can total a vehicle.

I’m typing this on an IBM ThinkPad that cost just a few dollars more than $1,325. They’re equating the value of small dent (smaller than my ThinkPad) with the value of the technology in my ThinkPad! That’s crazy!

If you do blog about your truck and it catches fire and then is totaled, your insurance company (and certainly a dealer) will encourage you to buy a new vehicle.

“A new truck will be safer,” the insurance lady said. “You don’t know what hidden damages from this engine fire may cause you to have an accident in the future.”

I don’t want to buy a new or used truck. I’d like to have my truck, hereafter known as “Old Smokey“, repaired. Why? Because keeping my truck will continue to save me money. A new truck will not save me money and one can never really know how well a used truck has been cared for.

Unfortunately, the insurance company seems determined to act so that the engine fire on my F-150 costs me more in the long term than I believe is reasonable.

Here’s how I think it works. I talked with a friend who has his hands in the salvage business.

If my insurance company totals my truck they’ll cut a check for the NADA Book Value which is $6,475 (or about the cost of 5 small dents). I can’t find a truck just like it with the same mileage for the same price. If they total my Ford F-150, they’ll sell it to a salvage buyer for about $800-$1000 according to my friend. Then the guy who buys it for that amount will take it apart or more likely, simply replace the melted plastic parts (master cylinder and wiring harness) and resell it for $5,000 or $6,000.

The system seems designed to allow someone else to get my truck!

Of course, I looked. New truck prices are outrageous. I priced a comparable 2009 Ford F-150. It would require unspeakable foolishness on my part to purchase a brand new replacement for Old Smokey.

I would instantly lose in the transaction. Here’s why. I went to FordDirect.com and “built” my truck in a 2009 model with the same features as Old Smokey which is now at the local Ford dealer’s body shop. The 2009 replacement for my 2000 model has a MSRP of $33,320!

When I price the new truck on the Kelley Blue Book site, www.kbb.com, I find the new 2009, $33,320 truck has a “value” between $26,725 and $29,460 … or about 20 small dents. In other words, I would immediately lose $6,595 by purchasing a 2009 with the same features as my 2000!

Finally, I’ve learned about vehicle recalls. If you have a Ford vehicle of any type, you should check the National Highway Traffic Safety Administration recall database and see if it has been recalled, especially for engine fires! (Ford’s site offers recall information but you must have your VIN handy to check their database. NHTSA’s database is more accessible because it does not require you to enter your VIN.)

P.S. Don’t blog about your truck!

I’m the happy driver of a 2000 Ford F150 XLT SuperCab with 130,000 miles on it. It’s a great truck and it’s paid for.

My good friend also drives a 2000 Ford F150 with more than 300,000 miles on it. His is a great truck, looks good and is paid for, too. In fact, my friend’s F150 inspires me.

If his truck provides a hint of what I can expect of mine, I figure, at 16,250 miles per year, I have more than 10 years just to catch up with him on mileage. And his is still in good shape.

I buy gas, change the oil, do routine maintenance, (I need to have the transmission fluid changed), and pay my insurance on it.

In terms of gas mileage, it can’t compete with a fuel efficient small car and certainly not with a hybrid vehicle. I fill it up a couple times a month and spend a little less than $200 a month on gas. When I write that, I think of another friend who drives a small convertible and spends about $80 a month on gas.

So, should I buy a new vehicle to save money on gas?

Absolutely not.

Here’s the math explaining why purchasing a car to save on gas is a bad decision for me.

I average 16,250 miles per year and pay about $3.60 per gallon. I think my truck gets 14 mpg. Divide the miles per year by the mpg and I use 1160.71 gallons per year. Multiple the 1160.71 gallons times $3.60 per gallon and I’ll spend $4,178.57 on gas.

Suppose I buy a car that gets 25 miles per gallon. I’ll still drive 16,205 miles per year. The new car I might buy will use 650 gallons per year. 650 gallons times $3.60 works out to $2,340.00. If I subtract that from $4,178.57, it looks like I’ll save $1,838.57 per year on gasoline!

But wait.

My truck is paid for. I paid $15,000 (+ interest) for it (never buy a new vehicle) over 4 years at 8% for a monthly payment of $366.19. That was then. Now, I have no car note.

If I buy a new car to save on gas, I’ll have a car payment.

Suppose I find a small car that gets 25 mpg and I pay $366.19 per month for it. Now let’s add the annual cost of gas to the annual amount of the car note.

The new car payments add up to $4,394.28 per year which, with the $2,340 I’ll pay for gas in the new car, becomes $6,734 (and a few pennies).

That’s more than I spend now on transportation. In fact, it’s $2,555.70 more. Divide that by 12 months and you’ll see that by driving my truck, I save $212.98 per month over buying a small gas sipper.

Some might say I should be more eco-conscious and become green. I say, I use those little twisted flourescent bulbs where I can and I have a pretty, green yard.

My truck saves me money. I can haul stuff in my truck. And I can go places in it I can’t go in a car (like to my wife’s tree farm – it’s green).

Why all this about gas mileage and my truck?

• It shows how financial math can help you make good financial decisions and save money.
• Today, Ford unveiled their new 2009 F150’s that get better gas mileage.
• Ford’s truck sales fell 39% in September.

In my mind, Ford has made these F150’s so well for so long that buying a new just doesn’t make sense to me … maybe in 10 years I’ll be ready.

Ruston, LA September 6, 2008 — Wheatworks Software announces LoanSpread 4.7, a major update of its award-winning loan comparison calculator. This financial calculator allows the user to compare 135 loans at once, review detailed summaries of selected loans and print amortization schedules with or without prepayments.

LoanSpread Loan Comparison Calculator is a powerful financial tool for consumers and professionals in banking, lending, financial planning and real estate industries. LoanSpread helps professionals see the big picture quickly when considering the time value of money or a particular lending scenario. The financial calculation results are displayed on a grid of answers making relationships among principal, interest rate, term and payment immediately.

Consumers can use the power of LoanSpread to analyze and compare possible loans more quickly than ever before. Because LoanSpread compares 135 loans at once, borrowers save time. Users can print out the calculation results for all the loans on a simple, easily understood, one-page report containing the financial answer grid.

LoanSpread helps users compare mortgage loans, too. After entering the estimated annual property taxes and insurance, users can choose to include them in the calculation results so that payments, for example, reflect the true monthly loan cost of principal, interest, taxes and insurance.

LoanSpread Loan Comparison Calculator solves for any of the primary loan variables a user wishes. By clicking a button, a user determines which calculated variable is displayed in the answer grid. The financial answer grid updates instantly with the results for 135 different loans.

What’s new in LoanSpread 4.7?

New to version 4.7 is the ability to create and print amortization schedules with prepayments. A user can right-click any loan in the financial answer grid and create an annual or monthly amortization schedule for it. Once the amortization schedule is created, the user can easily add prepayments to a single payment, a range of payments or to all payments.

Available now, LoanSpread 4.7 costs $39.95. Significant discounts on multi-user licenses are offered.

A free, fully-functional, 10-use trial is available for download from: http://www.loanspread.com

About Wheatworks Software

For more than a decade, Wheatworks Software has created award-winning financial calculators for consumers, professionals and companies in the real estate, investment, mortgage and financial services industries. Founded in 1997 by Rick Wheat, Wheatworks Software has released several financial software products including, Home Buyer’s Calculator Suite, Real Estate Calculator Suite, Discounted Cash Flow Analysis Calculator, Home Seller’s Calculator, SaveSpread(tm) and LoanSpread(tm). For more information, please visit http://www.wheatworks.com.

How we think about something often determines how we interact with it. This is especially true about money.

Most people want more money. But having more money does not make most people happier. It fails to do so because there’s no magic in money. It holds no eternal value. It can bestow nothing of true value upon those who possess it. Money is just money.

Few people think of money as a product that can be bought or sold. But money is exactly that.

Banks do not give money away. Banks are in the money-selling business. They sell it in the form of loans.

When you borrow money from a bank or other lender, you are actually buying the money. What you pay for it, the cost of money, is the difference between the amount you borrow and the total amount paid over time in the form of interest and costs.

Of course, some money costs more than other money. If one lender “offers” you an interest rate of 8.75% to borrow $100,000 and another lender’s rate is of 6.0% (all other terms being equal), buying money from the first lender will cost you more.

A quick way to compare 135 loans at once is to use the LoanSpread Loan Comparison Calculator. The LoanSpread(tm) calculator makes the cost of money obvious and LoanSpread’s Loan Summary feature shows the details of the costs.

Smart people shop around for the best price when they make a purchase. It’s amazing, however, how many people don’t do the same when they’re buying money. Remember, money is for sale. It’s always wise to shop around for the best price. And LoanSpread(tm) makes it easy to understand the cost of money.

Edmunds.com – “where smart car buyers start” – offers an excellent article that is MUST reading for anyone who will buy a car. The 9-part article, “Confessions of Car Salesman“, tells the story of an undercover writer who works in two different dealerships and writes about his experiences.

“Confessions of a Car Salesman” may open your eyes and alert you to what might be going on behind the scenes between the salesperson and the sales manager while you sit waiting in the car salesman’s office. Like most transactions that require negotiation, no one in the other party is focused your best interest.

Important Tips:

Be careful what you say when you’re “alone” in the sales cubicle.

Answer any “up to?” question with the same number you provided when asked what monthly payment you can afford or what purchase price you’re interested in.

Confessions of a Car Salesman is an entertaining, informative, easy read and should not be missed if you plan to purchase a vehicle.