Car Loan Interest Tax Credit

Senate Approves Mikulski's Auto Amendment
WASHINGTON, D.C. – U.S. Senator Barbara A. Mikulski’s (D-Md.) amendment to the American Recovery and Reinvestment Act to save American jobs and help American consumers by giving tax relief to new car buyers was approved by the Senate today.

“Today the Senate voted ‘yes’ to getting our economy rolling again,” Senator Mikulski said. “President Obama said the goal for the economic recovery program is to create jobs and save jobs. That’s exactly what my amendment does. It’s targeted at saving American jobs and helping families buy the cars they need to get to work and take their kids to school. Our economy is teetering, and Congress must take swift action to save jobs and lend a helping hand to struggling families. That’s what we did here today.”

Senator Mikulski’s amendment, the Auto Assistance Ownership Amendment, makes interest payments on car loans and state sales or excise car tax-deductible for new cars purchased between November 12, 2008 and December 31, 2009, which, in turn, will help more Americans afford cars during these tough economic times and spur investment in America’s ailing automobile industry. For more information about Senator Mikulski’s amendment, go to: http://mikulski.senate.gov/_pdfs/Press/autoownershiptaxamendment.pdf

The American automobile industry is currently one of the biggest drivers of the U.S. economy. One out of every 10 jobs in America is auto-related. A collapse of a major U.S. automaker, such as GM, Ford or Chrysler, would further erode the American economy, given the huge network of suppliers, dealers, and other businesses and communities that would be affected. Already this year the U.S. auto industry has shed 110,000 jobs. In Maryland, approximately 500 jobs have been lost this year due to the closing of automobile dealerships.

Co-sponsors of the amendment include: Senator Sam Brownback (R-Kan.), Senator Debbie Stabenow (D-Mich.), Senator Kay Bailey Hutchison (R- TX.), Senator Jim Webb (D-Va.), Senator Sherrod Brown (D-Ohio), Senator Robert F. Bennett (R-Utah) and Senator Evan Bayh (D-Ind.).

The next step in the legislative process for the Mikulski Amendment is Senate approval of the American Recovery and Reinvestment Act. The bill then goes to conference, where differences in the House and Senate versions will be resolved before the legislation is sent to President Obama for his signature.

Senator Mikulski’s remarks, as prepared for delivery on the Senate floor, follow:

“Mr. President, our economy is in shambles. Our unemployment rate is at a 16-year high. More Americans are out of work today than at any other point in the last 25 years, and we lost more jobs in 2008 than in any year since 1945. People are losing their jobs, their life savings, and their homes.

“There is much work to do and no time to waste. We’ve already done a bailout. We’ve helped the sharks and we’ve helped the whales. Now it’s time to help the minnows.

“I have a proposal that will help. I am offering an amendment, co-sponsored by Senator Brownback, to save the American automobile industry, to help consumers to get our economy back on track, and to help state governments get more revenue. “It’s simple, it’s straightforward, it’s bipartisan. It’s also timely, targeted and temporary. And it saves jobs. Everyone wants to save auto manufacturers, but no matter how much government aid we give to the Big 3 auto makers, they can’t survive if consumers don’t start buying cars. That’s where my amendment helps. “I want to stimulate demand in the automobile industry so that people go to showrooms and buy cars. Why is this a good idea? If you buy a car, someone’s got to make them, someone’s got to sell them, someone has to service them and someone has to provide administrative services. So this amendment is good for the manufacturers, the dealers, the suppliers and the consumers. “My amendment is simple. If you buy a new passenger car, minivan, or light truck by December 31st of 2009, you will get a tax deduction for your sales or excise tax and the interest on your loan. A family would save about $1,500 on a $25,000 car, not counting the additional incentives from dealers.

“My amendment is not about bailouts. It’s about jobs, jobs, jobs. Six million jobs are at stake in the American car industry. One out of 10 jobs in America relates to the auto industry. Right now the facts are gloomy. If we lose the Big 3, then 3 million jobs are at risk. The only way to save the Big 3 is to get people into showrooms, but 1,000 dealerships could close this year. That’s 53,000 jobs that could be lost just at the dealerships. I believe we can help by getting the consumer into the showroom. They will know that the government is on their side and helping them with one of the biggest purchases they will make during this tough time.

“My amendment also helps state governments. States rely on tax revenue from new car sales. In my home state and many other states the sales tax is around 6 percent, so on a $25,000 car the state gets $1,500 in revenue. New car sales are down millions per year from their averages. This means states are losing billions when they already are struggling. My amendment will help because as people buy new cars states’ tax revenues will increase.

“This amendment is a big deal to families because a car is the second biggest purchase most families make. My amendment is targeted. Families with an income of more than $250,000 a year are ineligible. Cars costing more than $49,500 also are ineligible. This amendment also helps the environment because it gets more people into new cars and new cars are cleaner and more fuel efficient than old cars.

“There are 20,000 new car dealerships nationwide. They employ a million people. In my own home state, there are around 300 dealerships. Most people don’t realize that dealers employ an average of 53 people in sales, mechanics, and administrative positions. I visited car dealerships in Maryland and heard from these employees.

“I’ve talked to people like the mechanic who works for a Chevy dealer in Bethesda. He’s worked there for 23 years. He said to me, ‘Senator Barb, all my life I’ve loved to work on cars. I just love it. I love to fix them, I love to repair them. If they’re new, I want to make sure they’re fit for duty. I’ve earned a good living. I’ve been happy and I think I’ve helped make a lot of other people happy. But the only way I can stay happy is if I continue to work. I’ve got a mortgage. I’ve got two kids in college. Maybe they’re going to go into engineering, I don’t know, but if we don’t get more people into this dealership, my job could be gone.’

“And I talked to the dealer. The dealer’s name is Sam. The first thing you note about him is that he wears the little rotary pin because he’s the guy that not only provides jobs in the community, he is also part of the Chamber of Commerce and part of the United Way.

“We are talking about people who are part of the fabric of our society. We are not talking about an abstraction and we’re not talking about a single zip code, like Wall Street. We are talking about the automobile industry, which is in every state and every community.

“Maybe you know somebody who works for a hedge fund. I don’t. But I do know the people who work for the automobile industry, like the receptionist who went to work at a dealership 43 years ago right out of high school. And she said, ‘Senator Barb, women couldn’t sell cars in those days, but I’ve been here in and out of this same dealership for 43 years. I’ve raised my kids and earned a good living doing the back office work and I want to keep on doing it. I’m not ready for Social Security and for God’s sake don’t put the money in Wall Street.’

“Well, I say let’s put money where it matters — where it creates jobs. That’s why we need this amendment — for creating jobs, for consumers, and for the auto industry that is such a driver of our country’s economy — so we can get America rolling again.”

Reviewed- Kiplingers new Car Buyers Guide

Kiplinger just announced its new Car Buyers Guide, so I thought I'd spend a few minutes checking out the site. Here is what I found-

User Friendliness-

On a scale of 1-10, 10 being the most user friendly, I'd rate this site a 10. I was able to quickly and easly find out MPG and invoice information on each vehicle that I researched. Very easy to navigate.

Usefulness of Information-

Excellent information is provided on each model that was researched. From saftey equipment and ratings, to base invoice price, tons of easily accessable information!

Site Design-

Although it is a little busy, it is nicely laid out and easy to navigate. It didn't take me long to adjust to all of the infomation and to find what I was looking for.

Content-

Tons of information for the car shopper. From new car invoice pricing to used car information, this site appears to have it all! I especially liked the ability to 'spec out' the car of my choice so that I could (1) see how much money it would be, and (2) see what options were available.

Summary-
Great content, lots of information for the car shopper. If you're looking for information to arm yourself with before shopping, I'd highly recommend visiting the Kiplinger Car Buyers Guide

Click Here for the Press Release

More Car Expenses? Money saving tips!

Car expenses. A necessary evil? A car can be a huge drain on your budget when its not properly maintained. And sometimes, even with proper maintenance, it can catch you by surprise.

Here are a couple of ways to ease the money pain when it comes to owning and operating your wheels.

• If you can car pool, or if there is public transportation, leave the car in the garage. Don't drive the kids to school if they can ride the bus. You'll save money on gas and reduce wear and tear.
• Combine your trips. Instead of running to the store to get ice cream, and then later dropping the kid off at their friends house, make one trip instead of two. Takes a little planning, but you can do it! Arrange car pools with other parents to run the kids from place to place.
• Find the lowest gas price in town (or even outside of town if that's what it takes) and fill up your gas tank. In the long run, it can be less expensive if you keep your gas tank full instead of hovering around empty because if you're close to empty, you're going to need to buy the gas no matter how much it costs!
• Have your ride services regularly. Check you tire pressure, oil and other fluid levels weekly. Follow the manufacturers suggest maintenance schedule (see your owners manual).
• Shop around for insurance! It can be a pain to check every year, but it can save you a lot of money. Insurance premiums can creep up on you if you don't pay attention.
• You can save a bunch of money if you can learn to do your own maintenance like oil changes, filters, spark plugs, etc.
• If you think that your car is acting strange, get it looked at before it gets real strange and expensive! Don't procrastinate! Minor issues can result in major repairs if not addressed sooner than later.
• Check around for a lower car loan rate. Yes, you can refinance a car loan. No, you're not stuck with the high rate that the dealer gave you! Another lender would be happy to give you a better deal. Check around!
• Don't take the car to the dealer for things like brakes, oil changes and mufflers. Specialty shops are no where near as expensive as the dealership. Shop around for price. You'll be surprised....
• Know your mechanic. Ask people that you work with or who are in your circle (like church or other community groups) who they recommend for a mechanic. Why? You don't want someone who is going to recommend unnecessary repairs or who's work is shoddy...

Dealer Financing, Good or Bad?

The convenience of letting the car dealer handle your financing can be very expensive. In our world of immediate gratification, this price might be something you're willing to pay. But, you should consider the alternatives and the cost.

The ability for the average consumer to get invoice pricing information and wholesale used car values has put a huge dent in the dealers ability to make a profit on the car. Now dealers use other channels to create profit. One of the the biggest profit centers in the dealership is the Finance and Insurance Department (F & I Dept.).

Making a big profit on the financing is easy for the dealer if you're an uninformed buyer. But, because you're reading this, you can count yourself as one of the lucky few. Now you're going to be in the know, and you will be an informed buyer. Knowledge is power!

So, how does the dealer make a profit in the Finance and Insurance Department? They start off by making a deal with an indirect lender. This lender could be your local bank, or one of any number of national lenders. It's likely that the car dealer has a couple of lenders that they have this deal with, and the deal is mutually rewarding. The lender doesn't have to market directly to you nor do they need to employ a loan officer to talk with you about your financing, thereby cutting way down on their costs. Instead, the Finance and Insurance Manger who is an employee of the dealership (and who incidentally is paid on commission!) is working for the lender, filling the marketing role by promoting the bank to you, and fulfilling the loan officer role by helping to complete a loan application and forwarding it to an underwriter. Sweet deal for the lender.

So far, we've talked about how this deal rewards the lender. How does it reward the dealer? Makes them tons of money, that's how! You see, part of the deal with the bank is that the dealer gets a special interest rate known as the 'buy rate', which they are allowed to increase or 'mark up' by 300 basis points or more. This means that if the dealer 'buy rate' is 5%, they can (and will!) charge you (the 'street rate') 8% or more for the loan! When they do this, they get to keep the difference in finance profit. This can be a lot of money when you're talking about a big loan. Let's look at some numbers:

$28,000 Loan amount @ 3% interest rate (the difference between the 'buy rate' and 'street rate') over 60 mos = $2187.00 dealer finance profit. Not bad for an hours work in the F & I Department, eh?

Let's look at the difference between a 5% (the buy rate) and an 8% (street rate) payment for a $28,000 loan over 60 months. The 5% rate has a monthly payment that is $39 less than the 8% rate. Look at it this way; you can make $39 per month for the next five years simply by spending an hour today shopping for a good car loan rate before taking the dealer financing!

Shop around for a car loan BEFORE you go to the dealer! Get a low rate loan commitment from your bank or credit union before you go car shopping. Then, after you've found your car, let the F & I Department make a firm rate offer to you. If it's more than what your bank or credit union has offered, you have a couple of choices. Negotiate a better rate. Will they give you a lower rate if you have shopped? Almost guaranteed! Even if they can't mark up the rate even a whisker, they will still get the 'retention' pay. This is a flat fee paid to the dealer, normally around $150, just for taking the application and handling the paperwork. Of course, you can forgo the negotiation and just get your loan from the bank or your credit union.


Be sure to vist The Mint Blog to read more awesome articles like this one in the upcoming 108th Carnival of Personal Finance!