In late June President Obama signed into law the the Car Allowance Rebate System or as it’s also known: Cash for Clunkers. This is a program that encourages people to trade in their cars for more efficient models. It also helps to stimulate the economy (similar to the first time home buyer tax credit) at a time when car sales are lagging.
The program runs from July 1st through November 1st 2009. Cars traded in during that time could be eligible for a credit of either $3500 or $4500 depending on the car and the increase in mileage the new vehicle provides.
From the CARS.gov site:
- The vehicle must be less than 25 years old – No digging up a rust-beaten car from the 70’s!
- You must purchase or lease a new vehicle – This doesn’t qualify for used vehicles. Leases must be for at least 5 years.
- For the most part, trade-ins must get 18 miles per gallon or less (when they were new).
- Trade-in cars must have been registered and insured for at least a year prior – No buying a clunker cheap so you can trade it in. This also means you can’t trade in a car sitting in your driveway that hasn’t been registered.
- No voucher needed, dealer will apply the credit – You have to find a registered dealer but after that the dealer takes care of the credit.
- CARS runs until November 1st or when the funds run out – One billion has been set aside for the program so there is an aspect of first come first served.
- The car you’re trading in must be destroyed/scrapped – Remember the point is to get the inefficient cars off the road. The trade-in value will most likely not exceed the scrap value. A dealer will have to provide you with an estimate of it’s scrap-value.
- The car must be in drivable condition – It has to actually HAVE mileage in other words. No towing in a car that doesn’t work.
- The new car must not exceed $45,000.
- You can find your car’s fuel economy at FuelEconomy.gov.
Jalopnik has a great chart on what your trade-in value will be based on the car type and mileage:
This sounds like a great program but it has it’s limitations.
Cars that are traded in have to be not worth too much and also get poor mileage. Thing is, a lot of people who drive a car that fits that description may be driving them for a reason – they can’t afford a new car. The credit helps but those that couldn’t afford a new car probably couldn’t even with the credit. Also, some cars would be more valuable as a straight trade-in rather than using the Cash for Clunkers credit. This limits the amount of inefficient cars that get taken off of the road. Then there’s the dollar amount and time frame. The program is only set up to expire either after November 1st or until $1 billion in credits have been given out – whichever comes first. Countries in Europe have less stringent rules and have seen car sales improve dramatically. The US rules may limit the effectiveness of the intended program.
It’s a good idea though. This could help get some inefficient cars off the road while boosting cars sales. Even if many don’t qualify it still might make them consider trading in their car for a new model. The full details of the Cash for Clunkers program won’t be finalized until later in July so we may see some changes that make it more appealing.