Chevy Volt Tax Credit Flap's A Flop

By John O'Dell June 6, 2011

Volt Tax Credit Flop.jpg

Are Chevrolet dealers taking advantage of uninformed customers by selling them used Volts with the implied promise that they'll get the $7,500 federal tax credit? Are they gaming the system by buying Volts from other dealers and keeping the tax credits for themselves? A right-leaning blog with longstanding opposition to the idea of government subsidies has said so, and the allegations have been picked up and spread all over the blogosphere. But our own research shows that the column by a blogger for the National Legal and Policy Center was more about politics than fair play.

The post makes it sound as though there's an epidemic of Chevy dealers selling Volts to one another to somehow make it appear that there's more demand for the car that there really is. How this would work is beyond us - no sane dealer would buy a car he knows he can't sell quickly -- the carrying costs would rapidly eat up any potential profit. Making the basic argument of the NLPC post even more laughable is that when we checked with General Motors, which keeps track of these things, we were told that since the Volt was launched in December there have been only 10 dealer-to-dealer sales. That's hardly sufficient to artificially boost demand.

Who Gets The Tax Credit?
The article also argues -- without presenting a shred of evidence -- that dealers who do buy Volts may be abusing the public trust by glomming onto the federal tax credit for themselves rather than letting regular retail customers get the benefit, which is the intent of the program. This would require the dealers to buy and register the cars in their own names and then sell them as used cars. If it is a problem, it isn’t a very big one. Our search of the major on-line auto sales listings found only 20 used Volts being advertised nationally. Hardly the stuff of conspiracy. While many dealerships are declining to talk to the media about the situation -- hoping, no doubt, that it will all blow over - several have shared their used Volt tales.

Jim Ellis Chevrolet is in Atlanta isn't in the initial Volt launch area, so dealers there can't get the cars from GM yet. Despite that, Ellis general manager Mark Frost told a The New York Times reporter, the dealership already has 32 orders for Volts and has bought two of the cars from a dealer in New York to use as demonstrators while it waits until it can order directly from the factory. Two Jim Ellis employees went to New York to buy the new Volts -- posing as regular customers -- and applied for the tax credits in their own names, Frost said. They kept the cars registered in their own names for three months, then sold them to the Ellis dealership at full price, he told the newspaper. Because they were previously registered cars when Jim Ellis Chevrolet bought them, the dealership was not eligible to apply for another tax credit. Frost said that when the dealership eventually sells the two Volts the buyers will be told they won't be eligible for the tax credit either.
That's because federal tax law is clear -- the credit goes to the first person, or company, that buys the eligible vehicle. Thus it would be illegal for a dealer who bought and registered a new Volt, collected the credit and then sold the car as a used vehicle to tell the new owner that he or she would get a tax credit. We've combed the Internet looking for complaints about that kind of nefarious behavior and haven't found one example yet. The tax code also says that tax credits for advanced technology cars like the Volt – as well as the Nissan Leaf and Tesla Roadster -- aren't to be claimed if the new-car buyer purchased the car just to resell it. But if a dealer buys a Volt and uses it for a demonstrator before putting it on the block, it would be difficult to prove that the primary reason for buying the car was to secure the tax credit for the dealership. That's one for the IRS to check into.

Evidence Lacking
At Raymond Chevrolet and Kia in Antioch, Ill., the sales manager said a used Volt listed for $52,888 was being sold on consignment and wasn't owned by the dealership. It would not be eligible for a tax credit, we were told after making several calls to track down someone who could answer our questions. At McDonald Chevrolet in Millington, Mich., and O'Rielly Chevrolet in Tucson, salesmen said that the used Volts in their on-line ads shouldn't have been listed because they are being used for test drives and aren't for sale. That the ads still were running two days after our calls makes us think the cars really are for sale and that the salesmen just wanted us to go away. But there's no strong case there for accusing the dealerships of taking the tax credit away from consumers or to make consumers think they could get a tax credit for buying a used Volt.

At Carlisle Chevrolet in Waxahachie, Texas, a salesman said that the Volt listed in an on-line ad as a used car with 1,291 miles on the odometer was actually a dealership demo that has never been registered and thus is still considered a new car - and that whoever buys it from Carlisle would be able to apply for the tax credit.

We thought we'd hit paydirt at Courtesy Chevrolet in Phoenix, which has an ad that clearly states it is offering a used 2011 Volt with 293 miles on the odometer for $46, 991 and urges potential buyers to "remember your $7,500 tax rebate as well." But our bubble burst as we read some more. The ad goes on to state that the car described is a dealer demo and isn't for sale and that customers instead should "place your order for the 2012 Chevy Volt…" A salesman reiterated during a subsequent phone call about the ad that the car was not for sale. One could argue that the ad is poorly worded, but is certainly doesn't support NLPC's contention that dealers are scheming to keep customers from getting a tax credit.

It is possible -- even likely -- that there are a few dealers out there trying to game the system; that wouldn't be unique to sales of the Volt. But nothing we found suggests a grand scam to rob deserving consumers of federal tax credits or a conspiracy to make demand for the Volt appear greater than it is.

Say 'No' To Inflated Prices
One thing we did find is that some GM dealers apparently don't think much of the intelligence of the consumer -- a Florida dealership is trying to sell a new Volt for $64,988, or almost 60 percent more than the before-tax-credit list price of $41,000, and several other dealerships have new or used Volts listed for more than $50,000. Our advice, of course, is that no one should encourage price gouging by agreeing to pay such ridiculous premiums. But it is not illegal for a dealer to ask whatever he thinks the market will bear. A smart consumer might run a quick title search on CarFax or a similar service to see if the dealer who's trying to sell a used Volt had bought the car new and thus was the party eligible to apply for the tax credit. That information could prove useful in price negotiations and the consumer could ask the dealer to pass along some or all of the credit in the form of a price reduction.

But price cuts usually come when cars aren't selling well, and although the pace of deliveries so far has been very slow, there's no indication that dealers are willing to slash prices – most of the dealers advertising Volts on-line are asking at or above the manufacturer's suggested retail price. With GM closing the Volt plant for the next six weeks for retooling and expansion, it is pretty hard for anyone to argue that there's a glut of Volts on the market – another stake through the heart of the NLPC argument.

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