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.

3 comments:

  1. This makes sense. Tax breaks are given out all of the time; very seldom does an owner-operator have a chance like this to pay a little less to the government.

    The gov't takes too much money from the citizens at large. My measuring stick for that is to look at the huge amount of waste. If they had to make do with less, perhaps they would spend it more wisely.

    THANK YOU OOIDA FOR WORKING ON THIS ISSUE!

    Danny Schnautz
    Pasadena, TX

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  2. How can anyone think this is a good idea?

    First, it's corporate welfare. Yes, the big fleets “only” bought 59,000 trucks. That is about 1 out of every 3 trucks sold. So the big fleets, 2% of the fleets according to this article, are buying 30% of the trucks. That means that 2% of the fleets will get $826 million in tax credits. Lots of the big fleets are publicly traded companies and they will buy their trucks corporate welfare or not.

    The article makes the point that if more trucks are built there will be more parts hauled to build them. Again a statement designed that, while not false, doesn't really apply. The big fleets are going to buy trucks anyway. So we would have to haul the parts anyway. So there would be no increase of traffic with the credit. The question is who would buy a truck, who would never buy a truck, because of the tax credit? If you were planning on buying 1 or 1000 trucks then the credit did not cause you to buy a truck, and therefor no additional trucks were built so no additional parts were hauled.

    It will hurt loads because the government would have to take the money from Suzy Consumer to give it to the big truck buyers. If Suzy Consumer doesn't have it then she can't spend it in her local store. If she is not buying something, then what OOIDA calls additional loads, really turns out to be less retail delivery and distribution center loads for us to haul.

    This is a bad idea that will raise the national debt, with all the problems that go along with it, and cut down on the number of new loads that are available for us to haul. Sorry OOIDA.

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  3. The reason I will not be buying a new 2010 compliant truck no matter what incentives that are being proposed is because I feel that they are not as cost efective as my 10 year old truck. My 10 year old truck doesnt pollute as much as a new truck do to the fact there are more parts and equiptment less fuel economy and more chemicals to be used. I dont know how these epa guys figure there effect on the environment but when you start adding more things and more chemicals to something theres bound to be more polution to create these so called green products. So no thanks to a new 2010 truck! Oh and one other thing it really says something about this new enviromental law when a very popular engine maker decides its time to get out

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