Cash for Clunkers Explained

The Consumer Assistance to Recycle and Save Program, more commonly known as the Cash For Clunkers Bill, has been getting a lot of press lately so I thought I would give it a look and see what it is all about. Luckily this is the shortest bit of legislation I have read in a while and it is a relatively easy read. Essentially the aim of the bill is to encourage Americans to “trade in” their old less fuel efficient vehicles for newer more fuel efficient models.

The provisions in the bill allow for two different levels of voucher a $3,500 and $4,500 depending on the fuel economy of the vehicles involved in the deal. Both vouchers are to offset the purchase price or lease price of a new vehicle. The most important part of the equation is the “combined” fuel economy of both your “trade in” and the new vehicle. You can do research on both of these values at fueleconomy.gov

To Qualify For a $3,500 Voucher:

You must purchase/lease new passenger automobile (a car) with no less than 22 combined mpg and at least 4 combined mpg higher than your trade in vehicle. Or,

Purchase a new Category 1 Truck (pickup/SUV) with no less than 18 mpg and at least 2 combined mpg higher than the eligible trade in vehicle, or

Purchase a new Category 2 Truck (Large Pickup/van) with no less than 15 mpg and at least 1 mpg higher than an eligible category 2 truck trade in.

To Qualify for a $4,500 Voucher:

You must purchase/lease new passenger automobile (a car) with no less than 22 combined mpg and at least 10 combined mpg higher than your trade in vehicle. Or,

Purchase a new Category 1 Truck (pickup/SUV) with no less than 18 mpg and at least 5 combined mpg higher than the eligible trade in vehicle, or

Purchase a new Category 2 Truck (Large Pickup/van) with no less than 15 mpg and at least 2 combined mpg higher than an eligible category 2 truck trade in.

What is an Eligible “Trade in”?

To be eligible, under cash for clunkers, to trade your vehicle must:

1. Be drivable
2. Have been insured consistent with state law and registered to the same owner for no less than 1 year
3. have been manufactured not more than 25 years ago
4. in the case of an automobile, have a combined fuel economy of 18 mpg or less (does this include trucks?)

Is there anything I can’t buy?

Why yes there is, thanks for asking. You can’t buy:

1. A car that is worth more than $45,000
2. a passenger car with less than 22 mpg
3. a Category 1 truck with less than 18 mpg
4. a category 2 truck with less than 15 mpg

What Does the Dealer Do With My Car?

So this is why I keep putting “trade in” in quotes. You aren’t really trading your car in, essentially you and the dealership agree to shred the car and you get a voucher for the new one. The dealer is responsible for ensuring the purchased vehicle and engine block are recycled/scrapped. They are free to sell off the other parts of the car with the exception of the drive train. Unlike your usual trade in at the dealership you won’t see this one sitting on the lot, ever.

My Car the Example

My wife drives a 2004 Isuzu Rodeo which gets, according to fueleconomy.gov, 17 mpg. Because I am under the 18 mpg I qualify depending on what I buy. If I want to get a new SUV and $4,500 credit I would have to buy an SUV with at least 22 mpg. Or for $3,500 I only need one with 19 mpg. The kicker here though is that my vehicle is worth around $6,000 according to KBB so I would never do it, but you get the idea.

The Wrap Up

You could see a benefit in a couple of major areas, there would be an impact on the environment from more fuel efficient vehicles being on the road. You would have a benefit to the car manufactures because more people will be encouraged to purchase new vehicles fresh off the assembly line. Finally, there would be some benefit on the scrappers side from selling parts off of the old cars as well as scrap. One more item of note. The bill only applies to vehicles purchases between July 1, 2009 and November 1, 2009.

All in all if you are already looking to buy a NEW car then this could be a great source of some extra money to put towards that purchase. You are probably going to save more in the long run though if you just buy used and shop around.

Feel free to read the full text of Title XIII – Consumer Assistance to Recycle and Save Program, aka Cash for Clunkers, at the GPO site. The Title starts on page 51.

Photo (striatic)

Tagged as: buying, cars, cash for clunkers