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Welcome to the Money Big podcast brought to you by Goodwin Investment Advisory, where our mission is to lead people to pig, peace, independence and generosity. I’m your host Reed Trigo, and today on the show, I am joined by Ray Brown, financial advisor here at GI I a for a discussion about automobiles.
We love talking about cars on this thing, don’t we? We do.
They’re such a great investment.
A nice depreciating asset, if you will.
I’m going to see if I can trigger you. I’m going to have a lot of opportunities today.
That’s how you’re just real quick, a quick story. I was in a gosh, I bought a car in what would the year have been? It would have been 20 gosh, I was in my mid twenty s. The year would have been approximately 2015, 2016. Bought a car, was paying cash. The finance manager came into the room and was like, trying so hard to get me to finance the car. And again, I’m a little teenage 20 year old working in the movie industry. I’m this little punk that’s sitting there. But I was smart, I was respectful. And it’s like, no, I’m not interested in financing. And he’s like, Mr. Brown thought you’d be a lot smarter than this. He’s like, you don’t want to protect your he literally called it an investment. I was like, You’ve lost your mind?
Like, do you have any idea who you’re talking am? You know, this big Dave Ramsey guy, it goes down in value. It’s not an investment, it’s not an.
Appreciating asset, but it is a use asset. And we’ll talk maybe more about that. That may come up later. We’ll see. Okay. But Ray, I’ve got a couple questions today. People wrote into us.
Oh, boy.
I know, I know. We’re excited. Wow.
We have fan mail.
We have fan mail. So first, here’s the listener question. Guy named Paul from Dunwoody, Georgia wrote in and he says, I own my vehicles and I’m ready to replace my 2012 Tacoma, which, by the way, is a similar car to what I have.
Okay.
I love it. It’s going to drive forever, but okay, that’s fine. He said, I hear it’s a good time to buy an electric vehicle. EV. I like the idea of an EV, but why is now a good time to buy one? So I’ve been seeing some things in the news.
EV, meaning electric vehicle.
That’s it.
Okay. One of those.
One of those. So yeah, I’ve seen some things in the news. What do you know about this?
Well, it’s funny. My cousin in law asked me, gosh, it was back late last year, about do those tax credits still exist? Because we all heard those. We live in Georgia. The state of Georgia had some incentives. I don’t know if there was federal stuff prior. As of end of last year, 2022, it was all gone. Tax credits were kind off the table. Electric vehicles was like a headline. It was big hype. A lot of people are interested. It’s kind of know everyone’s catching your interest. But those tax credits were wiped out. They were done. And now just here very recently as we started kind of thinking through this, there is new tax credits that are available. So I’m just pulling up the so it’s on the IRS website. Actually, if you Google, they call it the new Clean Vehicle Plan.
It qualifies for cars that were purchased in 2023 or later. And so it’s back. Those tax credits are back on the table. It’s a federal tax credit, $7,500. It’s under IRS code 30 D, and it’s for EV vehicles. And there are some very specific what do we want to call it? Some parameters that are required has to be fuel cell, electric vehicle. This is all part of the Inflation Reduction Act of 2022. Comes into play with all that. But there’s AGI limits, so you can’t make more than 300,000 as your modified adjusted gross income. That’s for if you’re filing jointly. It’s 150 if you’re a single filer. So it’s worth checking out. It is a credit. So, again, it’s basically like a little coupon voucher. It’s a gift card for the IRS, is what I like to think of. Tax credits.
There’s deductions, which reduce your income that you’re going to pay tax on, and then there’s tax credits, which is literally a gift card. So you’re getting a $7,500 gift card. It will reduce your tax bill by that amount. But it’s a non refundable credit, meaning that if you do your return and you pop this thing in there and the thing says you’re going to get back $8,000, you don’t get that. It’s going to be wiping you clean. Because that makes sense. You’re not getting any of the credit back. It will apply. It’s a gift card. It’s a gift certificate, if you will. Once you hand it over, there’s no redemption. You don’t get your change.
Yeah, I’d like to earned income tax credit. That is a refundable thing, right?
I believe so. That’s a tricky one. So there’s some that are refundable and some that are non, but this is indeed a non refundable one. So that means you’re not going to get a big fat check, if that’s what you’re expecting. You’ll get a credit for up to what you owe.
Listen to me, showing off on taxes.
Yeah, this quickly took a turn. My, how the turntables have turned.
Yes, they have. Turntables did. Have you ever owned an electric vehicle?
I never have. They’re interesting, though. I think I see them. I’m like, these are sharp. They’re fun. It’s all the rage. Everyone’s talking about them. Prices have come down. We saw a headline today, CNBC is saying tesla prices continue to drop again. The cousin in law that I mentioned, he was a little ticked when he bought the car. And then it’s like, now it’s like A Peloton. We bought the peloton during COVID and it’s like, why did I pay double what my friend’s paying right now? That’s not too fair. Nothing has changed. And so. Yeah, I think it’s supply, demand. We are seeing the prices drop, which is great, I guess, if you’re interested in buying one.
From an economic standpoint, at least. What I learned in my major in college is as long as the government kind of props this up, then it is incentivizing people. But probably you’re not getting a lot of that’s. Not adding equity. You buy a $40,000 electric vehicle and you get $7,500 credit, you’re really getting a $32,500 vehicle. And I don’t know, somebody’s benefit. The manufacturer gets the other $7,500. However that goes. And good. There’s some jobs, but I don’t know if we’re getting the right. Who knows if we’re getting the dollar? Return the ROI on that.
Yeah. This is a tricky one, because I think, as with all things personal finance, there’s a psychology play to it. And so it’s like the first question is, why are you interested in the electric car? Is it to get a $7,500 discount on it? Essentially, if you look@the.net cost after you. Yeah. Versus what is the true value in the car? And so if you think reed, to your point, if you go out and buy a $40,000 Tesla and you think that all right, cool. Now I’m getting that $7,500 credit. So what you got to do, we got to reshape the way you think about this, in that you’re paying $40,000 for a car, but the second that you get the keys, it’s only worth $32,500. The $7,500 difference. There is the tax credit amount. And why, you may ask.
It’s just simply because the fact that as soon as you drive off the lot, no one else that buys that vehicle from you is going to be eligible for that $7,500 credit. So it’s instantly lost that value. You get the value, but you’ve overpaid for the car. Like this is all baked into the pricing. The manufacturer is able to charge more, knowing that you’re going to get an immediate $7,500 credit. But now it’s less when you go. Turn around. Does it matter, though, if you’re not planning on selling the car? You could say, who cares? And so that is also part of the mental equation, though.
That’s Right. You just said that way better than I tried to. Thank you.
Hey, that’s why I’m here. Just Kidding.
That’s Right. I appreciate it. Anything else on the EV question?
I don’t think so. Back to the listener. Said he owns a bunch of cars.
Two cars, a couple of vehicles.
A Couple. Okay. Yeah. I think it goes down to why do you want it and are you paying? Certainly hope you’re paying cash for it. If you’re selling those other cars and you want to get into this EV thing, it’s a craze. The Values Are dropping all cars depreciate in value. Anything with wheels depreciates in value. We’re careful to remind folks not to call this an investment. It simply means to get you from point A to point B, no car goes up in value.
That’s right.
Yeah.
Great. Okay, second question. Now that interest rates have risen, is it a better time to lease than to get a car loan? Okay, so you’re a pay cash for your car guy, but let’s just say not everybody’s in a position to pay the full amount on a car. So lease or get a loan, interest rates are up. I mean, what do you get? Seven six, seven 8% on cars right now?
Yeah, it’s pretty wild. So gosh, this brings up two immediate thoughts and yeah, this is a good question. It’s a smart question. It’s a smart question to ask. It’s a very valid question. And it is hard to navigate because those Car people are just up to stuff. What are they doing back there? They’ve got the whiteboard up in the room. They always say like, let me go check with the manager and the finance man in the suit over there. And it’s like they’re eating donuts and watching football. What are they doing? They know the rates. There’s nothing to check. But they’ll go create some small talk and then come back to you. They’re playing Words with Friends back there.
It is such an, you know, this is why places like Carvana can charge more for cars on the price, is because they cut out all of that middleman spending your day down at the dealership negotiating and haggling and warranty package. And don’t forget, you need to protect your rims. Do you want the leather care? No, get out of here. So what was the question? Lease versus finance.
You have a lot of friends in the car business, or if you did, you don’t anymore.
My best friend actually works in the car industry. Him and I were talking about this was it last weekend? Give me the inside scoop, man. What are you all actually making on these cars when you sell it? I’m not a client. I’m not in here buying a car. Just tell me the numbers. What’s going on back there? Give me the inside scoop. And I asked him, I flat out said, are you all doing mini leases? First of all, my first question is, hey, times are crazy. How are you doing? Are you selling any cars? Like, no one’s buying cars right now. And we came out of a time where it was the COVID stuff going on where there was nothing on the lot. And my budy would tell me, he’s like, why am I here today? We’ve got eleven cars on the lot.
People are coming in to buy cars. We don’t have cars to give them. It’s just a nightmare. You’re going to preorder your car and wait. So we’ve had manufacturing issues. Now we’ve got inventory has called up, but now it’s, well I used to be able to afford a car in the 30,000 range, but not in today’s interest rate environment. That adds 200 extra dollars a month. We can’t do that. No different than buying a house. You can’t afford the same size house you could have two years ago.
That’s interesting.
The moral of the story is where I was going with that is that lease prices, under no circumstance would I ever recommend a car lease for someone that’s trying to get the best deal.
Got it.
That’s my disclaimer. If you’re trying to get the best deal, a lease would not be for you. If you’re an executive and you have no debt and you’re earning a lot of money and you love the art of having a fresh, new, clean car and you like having that and you understand that you’re willing to pay a premium for that, then by all means have at it. Do you buy your shampoo at Target versus Walmart? Target is a little cleaner, a little nicer on the inside, but you pay a little more. And if you can afford to pay twenty cents more for it, you go.
There and you’re fine with that.
That’s the logic.
I think this is related. I was talking to my brother yesterday who just upgraded. He got a new truck and he bought new, which okay, that’s good, he can do that’s fine. But he was telling me that he went in and they said, are you going to finance this? He’s like, why don’t I tell me the deal? So the finance guy comes back in and says, have I got a great deal for you. And my brother’s like a hunter, bearded guy. He’s like, I’ll be the judge of that. But basically the deal was, oh, seven and something percent on this price, but we can knock off whatever, five grand, ten grand or whatever and get you 3.75% or whatever. So he was going to offer him to buy down the rate.
Yeah.
Wow, that seems great, doesn’t it?
It’s like points on a mortgage. Yeah, I can get you a zero. Give me 25 grand up front. Yeah. Your interest rate is 0%.
Right.
So they offered him to discount the well they should have added to the price, right? Like you can buy the car if you pay cash.
I think they actually add to I don’t even know, I haven’t been in.
Yeah, it’s funny how they always ask you like, how do you plan to pay before they start talking price? They know that if you’re going to finance the car that they’re going to get a little kickback from the bank and the finance company. Even if you’re going through their internal Ford Motor Credit or MercedesBenz, they’ve got their own internal lending department, which is essentially operates the same way that a bond would. Right. It’s corporate debt at that point. They’ve got their own internal leasing company. It’s all just such a little money.
Great. Well, as my brother told me yesterday, too, he’s like I always get a chuckle out of people who say they got a great deal on a car, because his view is if it was a great deal for you, they would not have sold.
Well, they know what they’re doing and they’re not losing money. That’s for dang sure. They’ve got nicer furniture in their little waiting room than we do in the front living room. So that says something. But yeah. Reed I think anyone that’s listened to us here for a minute or heard me on the show, you know how I feel about things like after pay and that’s another one. Hey, it’s 0% interest. But it’s really not because you’ve got to understand that the price you’re paying reflects the cost of borrowing. So if you go into a mattress store and you get 1% interest on a bed, that means that they’ve jacked up the price to account for the cost that it costs for them to borrow the money to give it to you so that you buy.
It’s no different than them adding in we’ve said this 100 times on the show, but you’re adding in all your costs of doing business. We know that if I sell you a Diet Coke out of a fountain machine and you’re going to pay with your credit card I know I’ve got to pay thirty cents to run that Mastercard. Okay. So I got to charge $2.30 for the Coke. That’s a cost of doing business. I got to pay processing fees. I want to sell cars. We’ve got to pay financing costs, and we got to pay lending costs. And so we’re baking that into that price.
So the smartest way right now to.
Buy a car smartest way to buy a car, always cash. Cash is king. I think that’s the moral of the story. We’re just super aware that financing a car, leasing is just not a good idea in terms of trying to get the best deal. Yes, interest rates are up, so it’s going to cost you more per month right. Now to lease a car I’m sorry, to finance or to buy a car with a loan. And in the same sense, leasing would cost more in the same environment. Again, they’re kind of hand in hand, like the dealership is not going to take a loss. Your monthly price you pay to lease is going to be this. It’s going to be equivalent. It’s also going to be affected and adjusted by the current interest rates.
Well, great. Hey, and this is a good discussion, great questions that came in and very thoughtful. And these are things that sometimes we should revisit. Right? It’s a great question. Should I interest rates change, the economic environment change? Should I be thinking about something a little differently? The great example is cash makes money now. Cash makes 5% now, right? You wouldn’t have thought about this three, four, five years ago.
We’re talking about CDs right now in meetings with clients. And it’s like that’s not something you’d ever thought you’d be saying. But here we are saying, let’s put a little picture, emergency fund into some cash.
1980S are back, or something like that. Yeah, but as financial advisors, we manage and rebalance portfolios, but the unique value that we offer is that we work to understand our clients’individual goals so we can have these types of actual good planning conversations around their finances, because it’s all so personal and unique to each individual. Thanks again, Ray, for being with us.
Thanks for having me. It’s always a great time.
Right on. Thanks for listening. We’ll see you next time.
The Money Pick Podcast is hosted by Reed Trigo, a financial advisor at Goodwin Investment Advisory. This podcast is intended to share information and perspectives, but should not be interpreted as legal, financial, or tax advice. The opinions shared by participants are not necessarily endorsed by the company. Goodwin Investment Advisory is regulated by the SEC, and the company operates in compliance with applicable securities laws and regulations.
