Cash for Clunkers: How it works, and will you use it?
The "Cash for Clunkers" bill (officially known as CARS, which stands for either Consumer Assistance to Recycle and Save or Car Allowance Rebate System, depending on who you ask) has been signed into law. CARS provides $1 billion worth of vouchers to Americans who trade in their eligible car for a newer, more fuel-efficient model. Here's how it works:
- Eligible trade-in vehicles must be newer than 25 years old with an EPA combined fuel economy estimate (using the new 2008 formula) of 18 MPG or less (16 MPG for some large trucks). The vehicle must be in drivable condition and owned by the customer for at least one year.
- Eligible new vehicles (used cars need not apply) have a minimum fuel economy rating: 22 MPG for cars, minivans, and most SUVs; 18 MPG for very large SUVs, small pickups, and some full-size vans; and 15 MPG for large pickups and vans. (Large is determined by Gross Vehicle Weight Rating, or GVWR.)
- New vehicles must be bought or leased for at least 5 years, and must have an MSRP of $45,000 or less.
- The trade-in vehicle must be scrapped. (It's not clear whether the whole vehicle has to be destroyed or just the engine and driveline.)
So how much do you get? It depends on the vehicle type and the mileage increase. For most cars and SUVs, the voucher is $3,500 for a 4 MPG increase and $4,500 for a 10 MPG increase. For small pickups and humongous SUVs, you get $3,500 for a 2 MPG increase and $4,500 for a 5 MPG increase. And for big pickups, $3,500 for 1 MPG and $4,500 for 2 MPG.
So who is going to benefit from this deal? Probably not too many people driving newer vehicles, as their trade-in value is bound to be over $4,500. Not people driving older cars, as if they wanted and could afford a newer car, they'd probably be driving one. On the other hand, if you drive an old ex-cop-car Crown Vic and have had your eye on a Hyundai Accent GS or a Nissan Versa 1.6 -- congratulations, mate, you're getting your new car for half price!
I imagine this bill will most likely benefit small businesses using older work vehicles, which I guess is a good thing -- they can use the break. So you tell me -- who do you think this bill will help? Vote, comment, or do both, and share your thoughts. -- Aaron Gold
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Comments
I don’t know… some part of me is bothered by the fact that a vehicle in “running condition” (a pretty broad term) has to be scrapped for this to work. Looking at the pros and cons, the consumer buys a new vehicle which stimulates the economy and uses less fuel, which is better for the environment. Then again scrapping and disposing of a car may cause more environmental damage than allowing an old vehicle to stay on the road. Not to mention the resources consumed in building a new car.
Old Crown Vics notwithstanding, I’m curious to see the list of what cars would qualify for the trade-in.
Both of my “clunkers” are paid for, and the cost of a new one far exceeds the cost of a couple of extra MPG. This is a great way to force people into dealerships, but really does nothing for the average person. Besides, what about all the charities that take automobile donations? What will they do without autos to help them raise money?
For many of here in the South, an old pickup is just the thing for boat and trailer hauling. They can tow things that an Insight, or Prius can’t. My 16 year old “clunker” gets 22MPG on average (with a V-8), and still looks like new. Why mess with success??
I have a 1991 dodge dakota with a 318 and i wouldnt let it go for anything in the world with the exception of perhaps a new dodge ram.
Granted it only gets about 15 MPG. But i worked too hard for this truck and cant afford a payment.
Aaron,
From what I have read, this will be a short term program, starting 30 days after its signed and ending about October. I think this will severely limit its usefulness. I also think that the 18 MPG limit will hurt it. I have a ‘92 Volvo wagon that will not qualify because it has a rating of 20, obviously over 18 MPG. Compared to a new Malibu, I would get a 6 MPG increase while cutting emissions significantly. A Fusion Hybrid has a rating of 39, nearly double the Volvo. Shouldn’t this qualify?
Also, I have heard some confusion maybe you can clarify. Is there a definition of “drivable”, and who decides if a car is? And can you take a truck in and get the rebate buying a car, or do you have to trade a truck for a truck? I also have an old S-10 that qualifies at 18 MPG, runs and is technically drivable, but not legally, as it needs some work to be able to pass the VA safety inspection and is not registered. Would I be able to get the rebate on a new car?
These questions would have to be answered before I could decide whether or not to get rid of my truck (since the Volvo doesn’t qualify). Also, if the window is as small as I have heard, it would take something happening to one of our daily drivers within that window for us to act.
Thanks for your research and all your informative writing.
http://www.cars.gov/
Where do you think the Billion Dollars came from?????????????
Come on people think!!!!
Now the Gov. wants everyone to buy one of their cars
I know no one that this bill will help. I met a lady yesterday that has a 1989 Olds cutlass. She was convinced she would get $4500…guess what she gets–”$00.00″. A better solution would be “Buy any new car that gets 28 mpg or better and get a $2500.00 stimulus payment. That would HELP people.
Jeff — The letter of the law (which you can read at the link Jeff supplied above; click on “THE LAW”) says simply that the vehicle must be “in drivable condition”, which I assume means that it runs and drives. However, the law also says that the car must have been “continuously insured consistent with the applicable State law and registered to the same owner for a period of not less than 1 year immediately prior to such trade-in”. So if your truck’s condition prevented it from being registered, I’d say you’re out of luck.
The program is only funded through November 1st. I don’t think it’s going to help many people, and your example of the Volvo is a perfect example. The car may not be a gas guzzler, but it does pollute more than a new car. It sounds like you’re perfectly willing to trade it in under the program. And yet… you can’t.
Not to get into politics, but I am a big proponent of socialized medicine, and I believe the government could handle it well… however, when a program like this comes along, which should be simple but instead is convoluted to the point that it defeats its own usefulness, well, let’s just say it doesn’t help my argument any. — Aaron
Who cares about a few billion more dollars we don’t have wasted by this joke? The real idiocy today is the “cap and tax” bill being pushed through the House today. These liberal clowns won’t even read a bill which is bound to raise the price of all our energy in this country. All but one of the recessions since 1960 have been caused by energy price spikes, and now these idiots are bringing us fiscal disaster on purpose. It will be a big job-killer, and I hope the Democrats get the deserved blame for it.
I think we all agree this is a flawed attempt to stimulate auto sales disguised as a go-green issue. The play-by-play pitching and coming to agreement in congress probably started as a green initiative and then all the compromises and backdoor deals got involved to buy votes and we ended up with this useless legislation just like everything else in the history of our country. It’s the way our system works and it sucks. So bottom line:
Will it help the poor? No, probably was never intended to either.
Will it improve the environment? No, even if a significant number of people take advantage of this program, however unlikely, the increased MPG and smog reduction is still a microscopic amount compared to what else is going on. My philosophy in business and politics is to identify a pain point and address that with a proposed solution that is small in implementation but big in reward. This one is the opposite. If you want to do real high impact smog and carbon footprint reduction then offer upgrades to truckers. Getting 1 clunker big-rig off the road would be the same as 20 normal cars when you look at total time usage and fuel consumption moving all that weight.
The last question which is what this bill is really after…
Will it spur auto sales and pull automakers out of bankruptcy? NO! With all the compromises and provisions injected by too many cooks in the kitchen there is not enough incentive for the public to respond en-mass and provide a large enough shot in the arm for this decimated industry.
I think the auto industry needs to come to the realization that Americans no longer follow the notion or fall for their marketing plan that we need a new car every three years. Most of us, my self included, have gone through car after car about every three years for the past 20 years or so. But no longer. Today I am so happy with what I have (Infiniti G35) and realize how stupid and financially unwise I’d been, that I plan to drive car this until something serious goes wrong and even then I will consider repair over replace contrary to my historical record.
So should we shout our anger from the hills at the government for this? Why bother, it’s not like they will waste our money since no one will take advantage of it. Should we be outraged at the government and blame one side or the other? Again, why bother, this is just typical behavior for them. Why scold a dog for licking his own butt? He’s a dog, that’s what he does, and you won’t ever get him to stop anyway.
Okay, sorry I got carried away and long winded there, now back to the cars!!
The credit should be in addition to any value of the older vehicle.
The bill falls short of being a potential shot in the arm for new car sales.
here we have yet another example of “social engineering” and fron a government that can’t afford it. if I did take advantage of this offer I have a feeling my rebate check might very well bounce!!
I don’t know. I could use this. I’m driving a GMC Safari van that gets poor gas mileage. I’ll can trade it in for like a Mazda5 or the like. The bill isn’t for everyone and it isn’t supposed to be the answer to everything. I think if the gov’t owns 60% of one of the world’s largest automakers, it has in its best interest offering incentives for some people to buy. Plus, I think this neutered bill may serve as a kind-of jumping off point for better planned, better sold, and better executed programs in the near future.
Thanks Aaron. Now I can answer the question.
Just thought of one more problem with the concept. Just like the CAFE regulations it is designed (at least in part) to move people into more fuel efficient cars in order to reduce our dependence on foreign oil and reduce emissions. One thing that is not taken into account on either measure is the increase in miles driven. If I were to suddenly have the ability to drive at half the cost per mile, I would drive more. A 2000 mile trip to see family would be much easier to take, therefore would happen more often.
The better European program to follow would be raising the gas tax. Unfortunately our politicians (on both sides) seem to be afraid of sticking their neck out for what the pundits call political suicide. So we get things like CAFE and this bill, nothing but compromises, that will have very little of the desired effect. Forcing people into vehicles they don’t want (even if its whats best for them) will not work like they want it to. There needs to be a reason for people to want to change, and hitting them in the wallet is a good motivator. But there always seems to be some excuse to why “we” can’t do it. The public started to change their buying habits when gas got near $4/gal, but now have seen it drop back down to below $2. Sales of trucks have gone back up and small cars are down. A tax (possibly inversely indexed to the price per gallon) would be much more effective than forcing car makers to build what the public has little interest in buying. Plus, it might have the added side benefit of cleaning house in Congress!
After all, and I have been saying this for years, if pro is the opposite of con, what is the opposite of progress? Answer that and you will see where our problems lie…
I am actually planning on taking advantage of this program. Currently I drive a 1998 Ford Explorer…she gets a combined 15mpg per fueleconomy.gov. I just graduated college two years ago and I got a grown up job last year. I wouldn’t be abble to afford a new car on the $2500 trade in value of my car until next year. However, the extra $2000 from this program along with my savings will help me put almost 50% of the value of the cars I’ve been looking at. I’m actually pretty happy that this program came along.
The amount of money I’ll be saving in fuel cost plus the extra $2000 seems worth it to me. I understand that this program won’t benefit everyone but I don’t really think it’s meant to; I think it’s meant to target a specific population of people who WANT a more fuel efficient car just need a little extra money to get over financial burden of buying a new car. Every little bit helps!
If they really wanted the program to be effective, they would’ve made the credit applicable to more than just new vehicles.
There are tons of people in some legitimately crappy, thirsty, dirty vehicles out there, but not many of them can afford a to make the jump from a late-80s Buick to a brand new Focus.
Additionally, the cutoff at 18mpg is dumb. There are a lot of cars that were rated at ~20mpg that really need to be put to pasture.
These things would make the program more effective, but in reality, I’m happy the bill is as nuetered as it it. Many of today’s clunkers are tomorrow’s classics.
I’m glad that they didn’t simply “outlaw” vehicles older than a certain year or average mpg. The only way that anyone will get my 66 Charger is if they pry it from my cold, dead hands. It gets 16mpg.
The additional part about “not needing new bikers on the road” spois the poll and is a dismal thing to say.
I have 43 years “In the wind”
There’s room for whoever wants to throw a leg over a bike.
None of the present socialist offerings is going to do our nation any good.
I am a taxpayer and they are spreading enough wealth around to dead beats,
I would like to think that the consumer would benefit from this however, I have been trying to get financed and am running into a brick wall. There is a reason why people are driving these old out dated cars; mine is… I would need a nice down payment to get in a new car. Considering I qualify for 3500.00 with the cars for clunkers program, this seems ideal but the finance companies don’t think so. Sucks!
I took advantage of the program. Traded in a mechanically sound 99 SUV (15 MPG) with 70000 miles on it and probably easily another 70000 of reliable transportation had it not been sent to the shredder. Very wasteful program, this aspect of it not environmentally friendly nor friendly to the lower income family that could have bought the old SUV from me for $2000 and driven it for years. New small SUV gets 20 MPG – qualified for $4500 – another big whoop for the environment, but oh well I paid for this and many times over so I took advantage of the opportunity to unload a car worth $2000 for $4500, no sales tax on the $4500, and I get to deduct the sales tax that was charged at the end of this year, too. I am upper income and just never bought a new car because the old one was still running fine, didn’t really plan on buying a new car, but Obama practically forced me too with all the tax breaks and then the manufacturer and dealer threw incentives on top of that, so I took advantage of the deal.