"Cash for clunkers" bill passed by Congress - what does it mean for consumers?
A few months ago I wrote about several car buying incentives that were floating around. This was before the bankruptcy of Chrysler and GM and there was a rumor going around that the government would push consumers into buying new cars with a trade in program. Now it is official that a "cash for clunkers" bill has passed by both the Senate and the House. This $1 billion program was attached to the $106 billion war spending bill and offers vouchers to consumers who trade in their gas guzzlers. Here are some details on the program.
First, the cars eligible for trade in must be built in 1984 or later and get no more than 18 miles per gallon according to the Environmental Protection Agency's combined city-highway rating of a given model. You can find out the mileage per gallon of your car at http://www.fueleconomy.gov. The cars also have to be have been owned and insured by the purchaser for at least a year. I guess this is to avoid potential abuse where someone could purchase a piece of junk for a few hundred bucks and trade it in for much more money.
A consumer who trade in a car would receive at least a $3,500 voucher towards a car that gets at least 22 miles per gallon, and if the new vehicle gets more than 10 miles per gallon than the old car the voucher value would increase to $4,500. For small trucks and minivans that get at least 18 miles per gallon a consumer would receive a $3,500 voucher for a trade in that gets two more miles per gallon, and a $4,500 voucher for a trade in that gets five more miles per gallon. For a large truck that gets at least 15 miles per gallon a $3500 voucher would be issued for a trade in that gets at least one mile more per gallon, and a $4500 voucher would be awarded for a trade in that gets at least two miles more per gallon. The new cars must be priced at $45,000 or less, and both domestic and import brands are eligible.
The "clunkers" that are turned in by the consumers would be scrapped, so there is no trade in value other than the voucher itself. Therefore it would not make sense to turn in cars that are worth more than the voucher under this program. The $1 billion currently legislated is projected to last until September and the program is supposed to start sometime around August after the president gives final approval. The program is designed to last an entire year from the date of its enactment, but more funds for the program are yet to be found. It is possible that consumers may not have a very long time to take advantage of the program.
Obviously, car dealers have a reason to celebrate this new development because it is expected that it will lead to a lot of new car sales, but some are skeptical about the wisdom of this decision since it is another taxpayer funded program that seems to be bailing out a particular industry. Critics also say that the small amount of mileage increases required would not help the environment very much. What do you think? Do you have a clunker that you could trade in?
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