Cash For Clunkers Rebate Program Might Save You Money On Your Next New Car Purchase. But Is It A Good Idea?

Rebates, Tax Credits And Stimulating The Economy

The Obama administration has been giving us all sorts of stimulus packages this year that aim to stimulate spending in troubled sectors of our economy, and jumpstart consumer spending.  First we had the tax incentives for new car purchases, and then the $8000 tax credit for first time homebuyers.  Then we heard rumblings about the $8000 tax credit being expanded to $15,000 (which hasn’t happened yet).

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Now the government is about to pass another measure that once again aims to help the struggling auto industry, and at the same time get some less efficient cars off of  the road.   The program is being called “Cash For Clunkers“, or ” Car Allowance Rebate System/CARS“.   The program will cost about $4 billion, and the money is currently proposed to come from Energy Department funding included in the already enacted $787 billion economic stimulus package.  The bill is now simply awaiting the president’s signature to be enacted.

Cash For Clunkers – Car Allowance Rebate System/CARS And How It Works

The aim of the program is to get older less fuel efficient vehicles off of the road.  You trade in your old car or truck  for a voucher towards the purchase (or lease) of a new vehicle that gets better mileage. The better the mileage of the new car, the more money you’ll get towards the  purchase of a new vehicle.

  • You get either a $3,500 or a $4,500 voucher, depending upon the increase in mileage per gallon in old car to new car.  To find out the MPG of your old car vs. a new car, check out this website.
  • The minimum combined fuel economy of a new car purchased under the program must be at least 22 mpg.
  • Small trucks and SUVs have to get at least 18 mpg.
  • Large trucks have to get 15 mpg.
  • The old cars will be salvaged once they’re turned in.

Here’s a graphic showing the increase in mileage you would need to attain in order to qualify for either the $3500 voucher, or the $4500 voucher. The amounts vary depending upon the vehicle type.cash-for-clunkers

So what cars are qualified to be turned in for the program?

  • Must be in drivable condition.   (That means you can’t tow in that truck on blocks sitting in your front yard)
  • Have been continuously insured to the same owner for at least one year immediately prior to trade-in. (That means you can’t just go out and buy a cheapo old truck to trade in)
  • Manufactured in model year 1984 or later, so 25 year old or newer cars.
  • Have a combined fuel economy of 18 mpg or less.  Get anything more than that, and you’re out of luck!

How Do I Participate In the Program?

To participate in the program you just have to buy a new car from a participating new car dealership.  The incentive amount that you qualify for will be applied to the new vehicle’s purchase price.  You won’t receive an actual check or voucher.  The program will run from July 1, 2009 to November 1, 2009.

In order to participate in the program car dealers will have to register with the National Highway Traffic Safety Administration (NHTSA), and it may take a few weeks for a list of participating dealers to be put together, so be patient!  The government will be putting out a new website to give details about the program, and which dealers are qualified to give you the rebate.

When Does It Start?

The Cash For Clunkers Program is slated to take effect as of  July 1, 2009, however, it still needs to be signed into law by President Obama.    When it finally is signed into law the NHTSA will need to work out details of the program and set up a procedure for dealerships to get registered with the program.    When all is said and done it may be a few weeks or more before buyers will be able to participate.

My Thoughts On The Program

To be honest I can’t see how this program will be very effective at any of it’s aims.  I really don’t think there are that many old cars with bad gas mileage on the road anymore.  According to one analysis by Arlington, Va.-based investment bank FBR Capital Markets, the parameters of the “Cash for Clunkers” bill are narrow, and the bill limits eligibility to fewer than 5 percent of U.S. vehicles.   The participation rate in the program is probably going to be much lower than that.  Even for those 5% of the cars that are still on the road, a good number of them may still be worth more than the voucher would pay for them.  So what’s the point in getting the voucher?   On top of that for many people just keeping their old clunkers makes more financial sense because it means they won’t have  payment on a new car, even if they are paying slightly more for gas.

With unemployment hovering around double digits, most people just can’t afford to be buying new cars right now. (In fact, many people are now saying that most of the “clunkers” that are still on the road, are actually owned by people in lower income brackets, and they really can’t afford a new car  anyway)

I’d much rather see the money spent on this program be used for things like paying down the national debt.    What do you think of the program?  Do you think it will be effective in it’s aims of taking less efficient cars off of the road?  Will it give a boost to new car sales? Is the program set to be a failure right out of the gate?

UPDATE: The program has been suspended after less than 1 week. Find the details here.

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Last Edited: 11th February 2014

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Comments

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  1. Craig says

    This is a joke. Not even my old full size pickup is rated bad enough to qualify as a “clunker”.

    Taking on significant debt is not something I’ll do just for a 10 – 15% discount.
    Higher insurance on new cars, etc. This costs a lot… Not good financial sense for most people.

  2. says

    60% of the cars that are donated to charity will be eligible for a voucher. Since the tax deduction for donating a car is so low, charities will lose many car donations and the revenue they generate. A better idea is to just go back to allowing the donor to claim the book value for their car donation. This way all vehicles are eligible, the government doesn’t have to spend $4 billion on vouchers and administering a program with rules which are not enforceable! Since many of the cars that are donated are recycled there is an environmental benefit as well!
    http://www.cars4charities.org

  3. Dave says

    Cash for clunkers is a lousy idea.

    For one, your vehicle that you would trade for the $4,500 has some value itself. So, if your “clunker” is worth $2,500 on the open market, then trading it for $4,500 only nets you a $2,000 benefit. So, you turn around with your $2,000 to the plus and put it on a brand new car, which will lose $2,000 or more in the first year of ownership. Congrats! You got almost nothing through the program and now have a rapidly depreciating asset with a 60 to 84 month monthly payment attached.

    It is, financially, a much better option to sell the clunker yourself and buy a 2-4 year old pre-owned car.

    If you want to save the earth, just scrap the car yourself and buy a high-mileage used model. It is still a better deal.

    Thanks for nothing (again) Congress. If they were serious about this ‘green’ policy, they’d give the voucher and let you use it on only up-to-five-year-old car with good mileage.

  4. says

    I’m not a fan of this bill either. I don’t see how this is going to help many people. A lot of people who own qualifying vehicles either aren’t in a position to trade them in, or don’t have the desire to take on payments. Additionally, the fuel increases are not large enough to make a substantial change in our fuel consumption. This was designed for the auto companies and not the environment, as many politicians claim.

    Patricks last blog post..Cash for Clunkers Bill

  5. John says

    I think the cash for clunkers idea is great. I happen to own two qualifying vehicles (a 1994 Ford Explorer and a 1999 Caddy Escalade) and together they are worth less than $4,500. The fuel economy I am looking at is 13 to 37 mpg above my current experience depending on whether I choose a Toyota RAV4, a Mercury Mariner hybrid or a Toyota Prius as my new car.

    In the case of the Mercury Mariner hybrid there would be both the credit for the hybrid ($1,950 or $3,000 depending on whether it is a 2WD or an AWD).

    So, clearly the idea is bad for the other guys who posted here but not necessarily for everyone!

  6. Chad Dolly says

    This is the dumbest thing Obama has signed yet. Encouraging people to take on debt to buy a new car. I drive a 93 Buick Park Ave with 250,000 miles and even I get more than 18 miles per gallon so my car wouldnt qualify. Only vehicles that will qualify are gas guzzling SUV’s owned by people who can afford to get less than 18 miles per gallon. This law helps no one but the rich.

  7. M. Andino says

    Greetings:
    My vehicle was manufactured 0n 05-84 (May 1984), does it qualifies for trade-in?

    Thanks for your prompt reply.

  8. Tony H says

    I think it is a joke. I have a 1999 Chevrolet Suburban 1500 4wd. Meets the weight requirement, documentation requirements. Have been back and forth for almost a month now. Fuel Economy is claiming the hangup is the “curb weight” that is over 6000 lbs. This would make it a Class 3 vehicle. But where does any advertisement mention must meet “Curb Weight”. Ok all I wanted to do was trade the gas guzzler for ha Honda. I don’t need a truck! Come on, they say they are trying to get the gas guzzlers off the road and give an incentive? Why is it so hard? A trade-in would not get me $4500 thats for sure. These agencies dont have the time to address the real issues at hand. Rack another one for the GOVERNMENT.

    • Michelle says

      We are experiencing the exact same circumstances…trying to buy a honda and trade in a 99 suburban 4×4. Please let us know if it goes through for you…

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