Cash for clunkers

I’ve been hearing a lot about the “Cash for Clunkers” bill passed by the U.S. Congress -- officially, it's the Car Allowance Rebate System (CARS) -- but hadn’t seen all the details.

So, I decided to do a little research to figure out what vehicles qualify for trade-ins and purchases, as well as the terms of the rebate.

The CARS program provides a $3,500 or $4,500 voucher to trade in an old, inefficient vehicle for a new, more efficient vehicle. This comes across as a little unfair from an individual perspective: it rewards those who owned inefficient old vehicles to start, and ignores those who always owned fuel efficient vehicles.

The program’s intent, however, is to take gas-guzzlers off the road and increase the average fuel efficiency of the US car fleet. To this ends it should make some difference. It will take some of the most inefficient old vehicles off the road and encourage their owners, a group that might be predisposed to buying another gas-guzzler, to buy efficient models.

This is a creative program that should help in the fight against climate change. However, its terms are weak and increased fuel efficiency requirements for newly purchased vehicles would have made a more pronounced difference in cutting emissions.

Your old car

According to cars.gov, your trade-in vehicle must:

• Have been manufactured less than 25 years before the date you trade it in.
• Have a “new” combined city/highway fuel economy of 18 miles per gallon or less.
• Be in drivable condition.
• Be continuously insured and registered to the same owner for the full year preceding the trade-in.
• The trade-in vehicle must have been manufactured not earlier than 25 years before the date of trade in and, in the case of a category 3 vehicle, must also have been manufactured not later than model year 2001.

Your new car

You can either buy a new vehicle or lease it for a term of five or more years. The MSRP of the new vehicle you purchase cannot exceed $45,000, presumably to prevent hand-outs to the wealthy.

The program requires a combined (highway and city) fuel efficiency of only 22 mpg for cars. For light trucks (SUVs, pick-ups, minivans, and vans) this number drops to 18 or 15 mpg.

These numbers seem a little pitiful. $3,500 for a 4 mpg upgrade? This is how we’re fighting climate change? Well, that’s the minimum allowable increase in fuel efficiency, so we’ll have to see whether the average trade-in amounts to a 4 mpg jump or far more…

The deal 

Whether you get the $3,500 or $4,500 depends on the difference in fuel efficiency between your trade-in and new vehicle. A four-to-ten mpg difference qualifies you for $3,500, while a difference of ten or higher will get you the $4,500 jackpot.

This voucher will not count as income for tax purposes. You cannot resell your old car: you’ll get the scrap value or anything additional the dealer chooses to credit you, the car will be shredded and recycled. The voucher applies on top of any discount offered by the dealer.

Car makers have jumped at the chance to attract customers with this government subsidy.

Click on a brand name to  get more information about cars that qualify for the CARS program: Ford, GM, Toyota,  Smart (a division of Daimler), VW, Honda, Suzuki, Kia, Hyundai. Full details of the program are available at cars.gov or from the NHTSA, which will publish a list of all new vehicles that qualify.

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