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February 18, 2011

Rebate Ripoff

The Chevy Volt is a great example of why government incentives are a terrible way to accomplish policy goals: much of the rebate money goes to paying people for what they were going to do anyway. Another share of the rebate goes to increased margins for whoever is selling the favored product.

The Volt comes with a manufacturer's suggested retail price of $40,280 and a rebate from Uncle Sam of $7500. GM only plans to make 10,000 Volts this year; and there aren't enough of them to go around. So, naturally, dealers are marking them up – some by much more than the retail amount. One Florida dealer is asking $65,590 (see Motor Trend for details). You might be able to get one on eBay for around $48,000 – after rebate that gets you right back to list price. Hmmm….

This post isn't about the economics of the Volt or the technology. People are entitled to buy whatever they can afford and don't usually cost justify their choice of a car. I might want a Volt or a Leaf for the geeky fun of it or because I don't want to use oil products; that's my choice so long as I pay for it. But the government is insisting on paying me for what I would've done anyway.

No car dealer or manufacturer would offer a rebate on a product that is in backorder status for the foreseeable future. But that's exactly what your government is doing. Even if you believe that there is a compelling reason for the government to want us all to shift to partially electric cars, it's clear that no incentive is required to sell all 10,000 cars available this year since people are buying them at markups which counteract the incentive. In this case the rebate dollars go to dealer margin. Note deficit cutting opportunity.

Full disclosure: a few years ago, I put in some solar photovoltaic panels. I got about 10% of the price back from various state and federal programs (incentives were much lower than they are now). I knew the panels were no more economically justified – even with incentives – than our vegetable garden, which grows the world's most expensive horseradish; but I wanted to learn about them and I don't like where my money goes when I buy oil (I use electricity for geothermal heat so I am displacing oil). But I would've bought the panels even without the incentives. I got paid for what I was going to do anyway. Should I have refused the incentives? My rationalization in applying for them is that they are funded by my tax dollars so I might as well get them back.

By the way, you can also get the $7500 federal incentive if you buy a $100,000 Tesla electric car. And California will add on another $5000 for the Tesla and the Volt. California, of course, is looking for a federal bailout of the state, so we may get to pay that part of the bill as well.

Related posts:

We Can End Energy Subsidies

End Federal Wealth Insurance

Nuclear Plants Shouldn't Be Subsidized Either

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