Saturday, June 20, 2009

Auto Arbitrage

Congrees, in its infinite wisdom, has passed the CARS Act, offering up to $4,500 off new cars in exchange for scraping existing vehicles.

This is, of course, insufficent insentive for an individual to purchase a car who wasn't considering one already - most consumers who just wanted a discount probably bought during the first employee pricing promotion.

The scraped vehicles have to have been fully insured for a year by the nominal purchaser. However, there is no limitation on what happens to the vehicle once purchased, allowing for arbitrage oppertunities for those who happen to have a low-mpg car worth under $1,000 or so.

According to Edmunds, a 2009 Nissan Vera is priced from $9,900. Since merley pruchasing a car doesn't reduce its value below half, it should be possible to purchase one at a discount and trade it to a used car dealer for a newer used car and a slight profit. For maxium value, I'd recommend obtaining the Manufacturer's Certificate of Origin and towing the car to the reseller. Having never been titled or driven, it could even be sold to another new dealer.

In addition to standard negotiation tactics, keep in mind the new car dealer keeps the scrap value in excess of $60. The scrap value of a used car is often closer to $100 and includes towing it to the junkyard.

With a sufficent amount of arbitrage, this bill may actually increase average fuel economy, but any ultiamte environmental impact seems dubious and not at all cost-effective.

Fell free to post your arbitrage stories here.

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