Thursday, September 2, 2010

How is it bad to save a buck?

This is some pretty simple math, but let me walk you through it.

Let’s say that you buy a truck for $140,000. If you got a 10 percent savings on that, you’d keep $14,000.

OOIDA and a number of other groups have proposed to provide a 10 percent credit on the purchase of new trucks meeting 2010 engine standards for anyone – individuals.

Right now, this is just a proposal, so the details aren’t nailed down. OOIDA was at the White House this week with the other signers of the letter making darn sure that if any sort of tax credit is out that that it will mean money in your pocket.

There are several ways this could play out. One of the best scenarios would be a temporary reduction in the federal excise tax on new trucks.

Currently when you buy a new heavy-duty truck, say for $140,000, the federal government collects an excise tax of 12 percent.

That means you’re paying $16,800 in excise taxes.

So, if the 10 percent were knocked off in the tax collection phase, you’d be guaranteed the savings. Instead of paying $16,800 to the federal government, you’ll pay $2,800. That’s a savings of $14,000.

That’s a new car for your spouse. That’s a new roof and air conditioning unit on your home. That’s $14,000 in your savings account or retirement fund.

Bottom line, it’s $14,000 you didn’t have to hand over to the federal government.

Say the White House wants to give the credit to the OEMs. There’s nothing to say that restrictions won’t be placed on that credit mandating it be passed along to consumers dollar-for-dollar, percent-by-percent.

That could result in that truck costing $126,000 to begin with thanks to the credit. Again, $14,000 you keep. Which would also mean that you’re financing less and saving even more money, depending on the interest rate you’re paying.

How on earth can that be so bad?

OK, some of you may be thinking that it will just be the big fleets get all the incentive money. The truth is, they won’t.

Right at 96 percent of registered motor carriers operate 20 trucks or fewer. At the 88 percentile, it’s six or fewer. When you run the numbers (199,000 trucks sold that year) – about 59,000 of all trucks sold last year would have gone to large fleets. Approximately 140,000 went someplace else. Who do you think bought those trucks?

Those who are sour on the idea OEMs reaping the benefit of selling more trucks need to think on through that scenario – look further on down the line.

If more new trucks are sold, then more will need to be built. That means more parts and raw materials to build those parts will be needed.

Those parts and raw materials will need to be trucked in.

I suspect you’re getting the picture now.

Of course, the downside is, if this even happens, it would only be temporary.

The important thing to remember is this is – at best – just a proposal right now. It hasn’t been signed off on, and it lacks detail and the how and who is going to benefit from the money.