Small cars, big impact

Until last week I didn’t think that anything I heard about our crumbling economy could possibly come as any surprise. Gas prices peak in summer, then decrease in the wake of terrible hurricanes.

Some banks are allowed to fail, others get bailed out. The Fed cuts interest rates for months, then the day after the stock market plunges to its worst levels since 9/11, decides not to cut rates. AIG gets an $85 billion rescue, but thousands of homeowners are booted out of their homes each month with nary a peep from our government. Trying to wrap my pea brain around the “shoot first, aim later” methodology employed by the powers that be is like herding cats. That is, it’s freaking impossible.

Yet I was surprised last week when Merlin Froyd, Internet director for Star Ford in Glendale, brought up an interesting point regarding the continuing sales trend toward smaller, more fuel-efficient cars, and its potential impact on our local economies. “Right now in the American car market we know that the American buyer is really getting away from the classic idea that you need to have big as better, you need to have the SUV, you need to have the lifted truck. It’s almost become part of the style in America to become frugal again,” he said.

Make no mistake; Merlin applauds the shift toward smaller cars. “It’s great that people are buying small cars. It’s definitely, by far, better for the environment.” Incidentally, this goes for more than just hybrids.

Couple that with the fact that smaller cars are now coming with more options than ever and the trend toward smaller cars appears to be a huge coup for consumers looking to do right by Mother Earth while saving a few pennies.

However, Merlin next pointed out, this trend toward smaller vehicles may have some lasting economic implications that many of us (certainly me) haven’t even considered. “Taxes on an SUV that is $40,000 are substantially higher than a smaller car that costs $15K. DMV fees on a $40K car are substantially higher than DMV fees on a car that is less expensive,” Merlin explained. “By people buying less expensive vehicles, or by people not buying any vehicles because of the present situation in the economy, you’re going to start seeing local governments get hurt. The government is not going to have the tax revenue from car dealerships coming in, or at least not as much.” 

And as even I know, sales tax plays a vital role in our local economies.

Being the economic savant that I am, I had to have Merlin break this all down for me in the simplest terms possible, which he was happy to do.

If a dealership sells 50 vehicles at $40,000 per car (or SUV), they bring in $2 million. Sales tax on $2 million at 8.25 percent comes to $165,000. On the other hand, at $15,000 per car, 50 sales equates to $750,000. Sales tax (again at 8.25 percent) is now only $61,875. That’s a difference of more than $100,000. Naturally, if a dealership sells between 150 to 200 cars, that tax impact is going to increase exponentially. Uh-oh. 

The discrepancy in sales taxes is going to need to be made up elsewhere. So where does our state get the extra money? Do DMV fees skyrocket? Will our sales tax rate go up? Where will local governments make up for these losses in sales taxes? 

Clearly I don’t have the answer. Nor does Merlin purport to have the solution to this quandary either. “It’s a double-edged sword,” he admits.

All the same, though, I find it wholly refreshing to know that not everyone is asleep at the wheel like I am. I’m thankful that not everyone is living in the present with utter disregard for the future. At least Merlin is using a little foresight in acknowledging that this is a situation that will eventually need to be handled. 

It’s too bad he’s not running for office. I could really get into thinking ahead to the future rather than waiting around for another mess to be created, then haphazardly trying to clean it up, as we do now. In fact, maybe we’d all be better off trying to aim first, before we shoot ourselves right in the
foot … again. 

Contact Jennifer Hadley at jmhadley624@yahoo.com.