Cash For Clunkers: Should You Cash In On This Program?

by Stacey Doyle on August 3, 2009

Will the 2009 stimulus plan save the economy? Or the environment? Here’s a look at one of the latest incentives out of Washington intended to help us get our economy going!

cash for clunkers
Image from Boston.com

First, we had TARP programs to help bail out banks. Then we had bailouts for automakers. We also have a mortgage bailout and rescue program for troubled homeowners, some of whom are facing upside down mortgages. Now here’s the latest on yet another government program that’s drawing a little bit of fire lately. What else is it but the Cash For Clunkers program. With people looking for monetary relief in any possible way, the Cash for Clunkers program is meant to help us get rid of our old gas guzzlers in favor of new fuel efficient automobiles (we’re basically being bribed to do this). But it seems that just as soon as it kicked in, it was already financially strapped. It appears to be a victim of its own success. With everyone cashing in on the program all at once, it now stands precariously close to peril.

Some days ago, the House of Representatives voted to infuse another $2 billion into Cash For Clunkers; the government acted within hours of discovering that the program was running out of money. The extra infusion means that car dealers will continue to offer the promised trade-in financial incentives to consumers until they hear otherwise. Savvy consumers can take advantage of this obviously limited-time-only opportunity by acting sooner rather than later. If you own an older model vehicle, you can be one of the beneficiaries of a $4,500 taxpayer subsidy (which media reports claim can be up to 25% of the purchase price of some new autos!).

Cash For Clunkers: A Success?

The Cash For Clunkers is part of the Consumer Assistance To Recycle and Save (CARS) Act; it was initiated to boost United States auto sales since automakers have been experiencing the worst sales declines in more than twenty-five years, with car sales plummeting 35 percent during the first half of 2009. Here’s a funny: when the Cash for Clunkers program ran out of cash and the House acted to keep it alive, President Barack Obama was quick to claim that the program “succeeded way beyond our expectations”. Nice euphemism eh? The original budget of $1 billion was exhausted in a week!

Is It A Win-Win?

The Cash for Clunkers program offers folks with older, inefficient vehicles federal subsidies of up to $4,500 for trading them in. The money is used to purchase new vehicles with much higher gas mileage. Supposedly, it’s a win-win, with the consumer able to save big bucks off the price of a brand new car while the auto industry gets to move a lot more vehicles. And to top it all, the environment rejoices since it benefits from people driving all those fuel efficient vehicles. Old cars are scrapped so gas guzzlers are removed from the roads forever. Yep, on the surface, it sure sounds like a mutually beneficial program for everyone.

Hurry Before The Money Runs Out!

But how much more money will the government have for Cash For Clunkers? Nobody expects the House to approve another $2 billion for the program. In other words, I wouldn’t wait to take advantage of this significant rebate. If you’re driving an old car that burns gas, now is the time to invest in a new one. Senator Carl Levin recommends, “deals will be honored until otherwise noted by the White House… people ought to get in and buy their cars.” So all you consumers out there — come and get it!

Does Your Clunker Qualify?

Just because you have a clunker, doesn’t mean it qualifies. Forget about that unregistered, uninsured wreck in mom’s backyard for the past three years because it won’t qualify. Here are the basic trade-in requirements:

  • The vehicle must be in drivable, working condition;
  • The vehicle must be continuously insured to the same owner for a minimum of one year before the trade-in so you can’t get last minute insurance in the hopes of securing a $4,500 voucher;
  • The vehicle must be manufactured in 1984 or later since EPA mpg data doesn’t go back that far;
  • The vehicle must have a combined fuel economy of 18 mpg or less; and
  • If it’s a work truck (gross vehicle weight rating 8,500 – 10,000 pounds), it must be a 2001 model or older.

Is Cash For Clunkers Worth It?

Should you rush in and participate in the Cash For Clunkers program? If you were already in the market for a new vehicle, it’s a great way to save money and to get the best possible deal. While we haven’t been shopping around for a new vehicle, this program has allowed us to consider trading in our Jeep for a new model. It’s certainly an intriguing option since our Jeep has a few minor repairs that will cost several hundred dollars. After some rumination though, we figured that overall, it seems more practical to make the repairs and get another couple of years from our truck. Our vehicle is relatively fuel-efficient with low miles so it doesn’t make sense to take on a car payment for no reason.

I think that if you have cash on hand to buy a car, Cash For Clunkers will save you a bundle. On the other hand, it seems impractical to take on a car loan just to get a $4,500 rebate. My recommendation? Save your money for a year then use it later to buy a car when you can afford the monthly payment. I think that’s what we’ll be doing instead!

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{ 1 comment… read it below or add one }

1 Moira Lardakis August 4, 2009 at 6:12 am

One additional consideration is the cost of insurance. A new, fuel-efficient car will cost an additional $400 to $1,400 to insure annually. See our study (at insurance.com), where we compare rates for 7 popular new cars, including the Ford Focus, one of the top models purchased with the CARS rebates.

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