Cash for Clunkers

Cash for Clunkers is a federal program that helps you purchase a new, more fuel efficient vehicle when you trade in a less fuel efficient vehicle. The program would offer a credit that allows consumers to save from $3,500 to $4,500 on a new-car purchase. Cash-for-clunkers, formally known as the Car Allowance Rebate System(CARS), will provide about $1 billion in federal funds as incentive money. Eligible owners of gas guzzlers will receive a credit if they turn them in and buy or lease a new, more fuel-efficient vehicle. Preliminary rules saying clunkers must be less than 25 years old and get 18 miles per gallon or less in combined city/highway mileage also have hurt.  The program requires the disposal of your eligible trade-in vehicle and that the dealer discloses to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate. A similar program in Germany drew more than one million applications for vouchers. That program, at $6.5 billion, is larger than the U.S. version.  In the US, it is estimated that the program might boost sales by 175,000 vehicles in 2009. That isn't much help given the hole the industry is in. U.S. auto sales ran at an annualized rate of 9.69 million vehicles in the first six months of the year, down from 13.69 million in the same months of 2008.

What is the Timeframe for this Program?

While the CARS Act makes transactions on and after July 1 potentially eligible for credits under the CARS program, interested dealers and consumers may want to wait until all of the detailed issues that must be addressed in the implementing regulations are resolved and the final rule is issued. Issuance will occur around July 24. The clunkers program will run through Nov. 1 or until the funds are exhausted.  President Obama signed into law the program that is commonly known Cash for Clunkers on June 24.

What are the Eligibility Rules? 

Vehicles must be less then 25 years old and must get 18 or less MPG, although some very large pick-up trucks and cargo vans have different requirements. Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in.  You don't need a voucher; dealers will apply a credit at purchase.  To prevent repeated use of the program by the same person, the consumer will need to provide evidence of identity, such as a driver's license, and permit that information to become part of the documentation of the transaction. The program divides cars, trucks, SUVs and minivans into several categories, in most cases based on weight and size of the wheelbase. Vehicles that are traded in are to be crushed, not resold, and the sticker price of the replacement vehicle they purchase is not to exceed $45,000. Miles-per-gallon figures below refer to the EPA's "combined" mpg window sticker values.

Benefits of the Program

This program is meant to encourage consumers to trade in older, less fuel-efficient vehicles for new vehicles that get better fuel economy by providing a credit worth up to $4,500. Modeled after several programs that have already been successfully implemented in Europe, the program is expected to begin on July 23 and end on November 1, 2009. There are many proponents of the program, but also those who do not agree with the program.  If you're driving a clunker and thinking about buying a new car? you should check your car's gas mileage at the EPA website and its trade-in value. Read the details and restrictions of this new program, and then see if it makes sense.  

The Downsides to the Program

Under the law, NHTSA will make electronic funds transfers only to a registered dealer that has submitted the required proof of a completely eligible transaction. Only registered dealers will have access to the payment system. The problem, many say, about this program is that almost nobody will get the full benefit. The $3,500 to $4,500 voucher only kicks in if your trade-in is worth less than that. In other words, if the car you're trading in is worth more than $4,500, you won't get a dime. Also, your trade-in car has to get less than 18 miles a gallon. While some trucks and SUVs will pass that test, almost all cars, even old ones, get better mileage than that.

What Does this Mean to Dealers?

The National Automobile Dealers Association is encouraging dealers not to make any offers until the final details of the program are known so they don't put their own money at risk. Dealers are gearing up with online and newspaper ads inviting potential buyers to stop by and see if they are eligible. Still, the lag between passage of the measure by Congress last month and implementation has cooled consumer sentiment, dealers across the country say. In general, dealers like the idea behind the program, but feel that overly strict eligibility rules could limit its effect. The dealer will be expected to verify that the vehicle being traded in and the vehicle being purchased or leased are both eligible under the program. This will entail, with regard to the trade-in, making sure that the registration and insurance information is accurate and that the vehicle is in drivable condition. For both vehicles, the dealer will need to verify their combined fuel economy.

U.S. Looking for Results

This program was approved June 1. However, restrictions on eligibility combined with delays in launching the program -- which promises rebates as high as $4,500 -- have quashed hopes that the U.S. will see the same sort of car-shopping craze experienced by countries such as Germany and Brazil that implemented similar plans. With regard to the trade-in, NHTSA is considering various measures to ensure that the vehicle is never used again as an automobile in this or any other country. Still, the government is hoping for results, and feels that this program may kickstart the auto market, while also improving the mileage of vehicles on the road. If you are not aware of the fuel efficiency of your vehicle, go to fueleconomy.gov  to find out.