I’m going to apologize up front and state that this post is not a post but in fact a rant. I’m going to chalk it up to “it’s still summer time so we can get away with a few of these. Yesterday, I casually flipped to the Wall Street Journal (I try to do that every day but I don’t always make it there) where I saw this headline, “White House Proposes New Rules for Touting Cars’ Fuel Economy. Essentially, the government will assign a car letter grade (A-D) based on fuel efficiency and emission levels and that grade would appear as a sticker on the car. As you can imagine, the hybrids will score an A and the Chevy Suburban will probably score a D (correct me anyone if I’m wrong here). I’ll even bite my tongue and not comment as to what I think of the US government legalizing its own grading scale (just read the comments in the WSJ if you want to gain a sense of what people think about the specific grading system). Instead, I’m going to chat with you about a buying decision that my partner in crime and I are considering for the business of which MetalMiner is a part.
We’re considering the purchase of a car for the business. We both meet with lots of people and companies and the time has come to consider such a decision. My husband has been described as someone with shall we say, “champagne tastes.” I tend to be the more “practical of the two of us if you can call it that, when it comes to big ticket items (though I will admit that I begged Jason to consider a Miele washer/dryer, based on Total Cost of Ownership you can read more about that here) Anyhow, I want some sort of sedan for the business so I don’t have to drive around the family-cheerio-filled Honda Odyssey mini-van. Jason has done much of the research (something about men and cars) and I just have veto authority. So when Jason suggested we look at the Chevy Volt (I would not classify myself as either green or an environmentalist) I said, “sure why not as long as we are incented by our government to buy the Volt.
Let’s talk about those incentives shall we? Despite the letter grade of the Volt (undoubtedly the government will give it an A) at $41,000 (unloaded and though I don’t consider myself as having those champagne tastes, I can’t recall ever purchasing a vehicle with only the base package) with a $7500 federal tax credit plus an IRS 179 deduction of $10,960 that our business would be eligible for, I’d be looking at an effective post tax liability of $22,540, in the first year, prior to additional depreciation. And I might feel good as well, after all, the Volt is “green and my government wants me to help save the earth.
But does it?
Not exactly, according to my own research. The IRS 179 deduction provides for a $25000 initial first year deduction, if your business purchases a vehicle that has a gross vehicle weight of 6000 pounds. To find a comparable vehicle in purchase price to the Volt, I selected the 2010 Volkswagon Touareg with a MSRP price range of $40,850 – $44,350, (by the ‘way’, pun intended, it comes in over my 6000 pound thresh-hold needed to qualify for the deduction). So, let’s say at $41,000 (and I don’t add any options, again not likely), I get to deduct $25K from the $41K price tag off the bat, reducing our business’ tax liability significantly. In other words, our effective post tax liability is roughly $16K in the first year, of which we can depreciate entirely in the coming years. Did I mention the gas mileage on the Touareg? It’s a measly 14 in the city and 19 mpg on the highway. However, I don’t need to make a TCO (total cost of ownership decision) because this is my business car and I’m only using it for business meetings (meaning it will get relatively low mileage).
So let me get this straight. The federal government now wants my business to buy A rated cars (lest I wear a letter D branded on my breast) but that same government is giving me a $6540 incentive to buy the dirty gas guzzling Touareg vs. the Volt.
In the prescient words of astronaut, John Swigert Jr, “Houston, we have a problem. As for our buying decision we will have to decide between altruism and next year’s tax increase. I think I know what our decision will be.