Cash for clunkers

The government announced the details of the $1 billion “cash for clunkers” program today.  Here’s a relatively good Q&A on it.

One thing the Q&A says that I disagree with – ok, I think they are 100% wrong – is this:

Q: My old car or truck is worth more than $4,500. Should I use this program?

A: Probably not. The program essentially guarantees a minimum trade-in for a vehicle. So someone with an old beater valued at $1,000 that meets the mileage requirements stands to gain the most. Any prospective buyer with an old car worth more than $4,500 should probably trade it in for a new one. But many automakers and dealerships are offering additional incentives, so it’s worth talking to your dealer.

This is wrong because a sensible buyer will NEVER buy a new car – unless you’ve got piles of cash laying around that you don’t know what to spend it on.  Buying a new car is one of the most stupid financial decisions you can make.  Especially if you need to borrow money to buy it.  Spending money on something that will lose  at least 1/4 of it’s value within a year is stupid.

Buy a used car instead.  Personally, I think a 3 year old car is the sweet spot – some other sucker gets hit with the depreciation, while you get a fairly new, low mileage car for about 1/2 the cost of the car when it was new.

Here’s a link to the NHTSA page with all the details if you’re curious.

gk

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