"Cash for clunkers" bill passed by Congress - what does it mean for consumers?

By Xin Lu on 18 June 2009 (Updated 30 July 2009) 28 comments

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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Guest's picture
Guest

...me as I drive used Camry's that get 35-40 mpg depending on how well I am doing with my hypermiling.

It won't help the poor or lower middle class. It will help the upper middle & rich as per normal.

typical feds. blowing money on feel-good programs.

Guest's picture
shandizzie

I am the defition of middle class and I have a beater jeep that I cannot wait to trade it for more fuel efficiency and help towards a more reliable car that does not emit as much carbon. I'm sorry that you all must already have nice cars... Then, I guess you don't need it anyway.

Guest's picture

Fortunately, I don't have a car that I can trade in. A fuel efficient vehicle has always been cool with me.

I'm not as concerned about the government bailing out the auto industry as I am about individuals making potentially bad financial decisions in order to take advantage of a coupon.

In the long run, this could end up costing consumers. Most people are probably better off holding on to their clunker if it's paid for and runs well.

This reminds me of the time when people justified trading in their SUVs for an expensive hybrid to save on gas. It wasn't that long ago. Even if gas prices stayed at $4 per gallon, which they haven't, it'd take some people over 20 years to recoup the cost of buying a new hybrid.

On the plus side, more fuel efficient vehicles are better for the environment.

Guest's picture
Tasha

I'm living in a city with readily available public transportation but am planning to move to a city without it. So I have to buy a car. But I just graduated from grad school, so I don't really have the cash -- $3500 would be a huge help toward a car for me. Except I don't have one to trade in, because I was already poor and using public transportation, which already helps the environment. Damn. Think I could get a $300 clunker from a scrapyard and trade *that* in?

Guest's picture
Bryce

I have an old car that could be traded in, but I won't even be trying.

When the government pays for something, they have to get the money from somewhere. That means they take it from me or my neighbors, or worse, they'll take it from my children.

I wouldn't be willing to go around to each of my neighbors and say "Will you give me money so I can buy a new car?" So I'm not willing to ask the government.

Guest's picture
Guest

I have a late-90's SUV that qualifies. The car has been paid-off since 2002, and is starting to have some major issues (13 years old). I already expected to have to buy a car by the end of 2009 (hate spending $$ on cars), so this bill is perfect for me.

Guest's picture
Guest

Wow that really hurts. And what we don't consider are all the new people needed to administer the program. How much of our tax dollars actually goes towards cars? The way I figure it each of us rents half a bureaucrat, and they're answerable to none of us.

Guest's picture
Guest

I know this is a Wisebread article, but a point seems to be missed. Everyone is focused on the cash, but this program will get poorly running and gas-guzzling cars off the road.

The problem is that people have a paid-for old clunker that makes sense financially, but pollutes and drains fuel. It has been calculated (I can't find the article but here is http://www.detnews.com/article/20090327/AUTO01/903270399/1148/rss25) that if every car in America increased their fuel efficiency by 8% on average, then the US would not be dependent on foreign oil. (I'm sure we'd still import, but we wouldn't be forced to). This program provides an incentive to recycle their guzzlers to help meet this goal.

Is the economy so bad that we forget what was important 1 or 2 years ago? This program is part of a much larger goal than just trying to distribute wealth.

Guest's picture
Guest

I don't qualify because my car already gets good gas mileage. My dad swears by the car buying process here: http://excarsalesman.typepad.com/. It is kind of similar.

I haven't tried it yet, but I might because it looks good.

I have a feeling dealers are going to automatically increase prices because of the increased demand (artificial) for lower MPG cars. So the thousands of savings from this bill for consumers is not entirely accurate. The demand will increase prices and you'll get a voucher from increased prices. I'm certain some markets you'll come out even as if they never offered this voucher. It is poorly written legislation.

Guest's picture
Aura1

this is not going to help anything! THE GOVERNMENT NNEDS TO THINK EARTHWISE! the thing that should be happening is money being spent on alternative fuel and a way to incorperate that into the cars we already drive. Giving incentives for ppl to switch, Like vouchers, tax rebates, affordable conversion options, and the alt. fuel to be affordable as well as available.

Linsey Knerl's picture

I can't say much for gas mileage (which appears to be the "heart" behind this legislation), but in my opinion, this goes counter to how I was raised.  Getting rid of a perfectly good car that gets 2 MPG less than a new one is not green. (My 95 Saturn 4-door gets way more gas mileage than these new cars they are putting on the market.. seriously.)  Using what you have, modifying to make it better, and using it only when you need to?  That's greener living.  Trashing the old to make way for the new ends up with just that... more trash.

What ever happened to "be happy with what you have?"  Especially when you are talking 2 MPG... geez.

Great topic, Xin!

Linsey Knerl

Guest's picture
Ken O

This program is terrible.

Gas prices will keep rising for geological reasons and these vehicles can be as little as 1-2mpg more than the "old" one and still get our taxpayer money.

Very very stupid.

There are better ways to fund sustainable development. This ain't it!

Guest's picture
Rosa

Are they only for new cars at dealers, or can they go to old cars or individual sellers?

My neighborhood is just *littered* with old SUVs and minivans people can't afford to drive and can't afford to sell. The worst thing that happens to them is teenagers buy them for $1000 or less and drive around as a menace to everyone. Some of them have been parked on the street marked For Sale for a year or more.

So if people can trade them in for a few thousand and get a newer, more energy-efficient used car that they can afford, that's awesome. But if it's only to get people to buy new cars I don't see how it does any good - a new car costs $15,000 or more, if you can't afford it at $15K you can't afford it at $12K.

Xin Lu's picture
Xin Lu

Yes it is for new cars only right now.  I'm not sure if the amendment to include old cars made it in or not

Guest's picture
Guest

The fact is, the incentive isn't enough to cover the first year's depreciation on most new vehicles. The clunker driver would be better off to sell his or her vehicle to a salvage yard and then to buy a 2-4 year old vehicle with better gas mileage.

Of course, on the environmental angle, one would say that ditching a working older car would just pass it on to someone else, not get it off the road. That is, in fact, my ultimate point. The "deal" offered for clunkers is not good enough. If they (the government) thinks it is its job to save the ozone or the polar bears, then they need to get serious about it. This program should enable people to turn in clunkers for late model used vehicles as well, not just new.

Bottom line, it is less about the environment and more about GM (a government owned company) selling some more cars.

Guest's picture
L. Carter

Get real congress.... new cars that get 22 to 25 mpg? My old '94 Buick gets 27 mpg in town with the a/c on. On the highway up to 30 mpg and what's more it has over 130,000 miles on it and runs great! I'm keeping it.

Guest's picture
Voice of Reason

Now the government wants to blow a billion dollars just to scrap classic cars? Outrageous! What next, a bill to promote the bulldozing of houses that are not considered green? Who came up with the arbitrary numbers of 18 and 22mpg. Is there any real science that shows this will make any difference, let alone a billion dollars worth of difference?

Guest's picture
Guest

It's great to get gas guzzlers off the road and help the auto industry, but, like, DUH!!! Why didn't they restrict the use of taxpayer dollars to only buy cars either made or significantly manufactured more than 50% in the USA? Most of the affordable fuel efficient cars available on the market today that the target "clunker" audience can afford are manufactured in other countries (like Kia in South Korea, etc.) Worse, many of the so-called "American" cars like the Ford Focus are substantially manufactured in foreign countries like Canada or South Korea (don't get me wrong, I like our neighbors to the North just fine, but I don't feel we should be sending them taxpayer money), while on the other hand there are certain better-made "foreign" cars like Toyota and Honda which are more than 50% manufactured at factories in the USA staffed by US citizens (Consumer Reports rated how much of each make and model is really "made" in the USA and the results will surprise you).

This is another debacle like the $800 tax rebate checks which immediately got spent at Walmart for goods manufactured in China and did squat to help anybody except fat-cat CEO's. The government should have demanded US taxpayer money should only go towards at least 50% (or more) USA-manufactured automobiles. Isn't the entire point to keep jobs -!and infrastructure!- in side the USA in case we ever need to suddenly convert those automobile factories to make bombers like we did in World War II and have workers who actually know how to run the machines?

Xin Lu's picture
Xin Lu

Well this bill is for all brands of cars so it is not really discriminatory towards anyone.  I know my hubby's Honda was actually assembled in the USA, and my Honda was assembled in Japan.    Foreign auto companies do hire a lot of people in this country like you said but it is sort of hard to say which car is made where even if the brand is the same.  I think it is good that at least this bill doesn't send a message of protectionism.

Guest's picture
Sunny

The bill says that it starts on July 1st. But the president hasnt signed it yet. Does this mean that even thought it hasn't come into effect yet, if I buy a car on July 2nd for example, I can claim the voucher, whenever it does get signed, and thereby get upto $4500 towards my trade-in?

Guest's picture
Ryan

So let me get this straight. since the economy is bad, the government is using tax dollars to junk perfectly good running cars that could be sold to needy people who cant afford new hybrids, so "wealthy" people (anyone who can afford a new hybrid) get part of their new car paid for with my tax dollars?

as for being green....
how is forcing the (unclean) melting of these mixed materials (cars) green? a couple MPG increase isn't "green" enough to offset the carbon footprint of manufacturing a new car! This isn't about being green, it's about control as usual. all of the cars this program applys to already have to pass emissions test proving they run clean every 2 years. I will not be trading in my (very reliable) '93 explorer. (new similar sized vehicles only get marginally if any better mileage anyway!)

Guest's picture
Matt

The next crime wave was just launched with this. A $400 car can be stolen, sold for $2000, and then traded in for $3-4000. There is a provision that the car be owned for 1 year, but the tile is easily forged, and the actual value of the car isn't worth the deductible on most insurance policies. Plus it will be run by the same caliber gov't employees we already have. The rings to process these cars are already being seen by law enforcement here in FL and elsewhere.

The fuel efficiency required on this is modest, and if there was a real push for this to happen the market would address it. More pork and debt for another government program that was given less thought than an impulse buy in line at a checkout counter.

Guest's picture
Guest

This program sucks. I have a 1993 Oldsmobile Cierra that I would definitely call a clunker. But guess what? The government says that my car is rated to get a combined fuel rating of 22 mpg. It doesn't. But it doesn't matter what it actually gets. I went to the dealer to try to buy a new car and take advantage of the program. I CAN'T!!!. If I can't use my 16 year old car in this program then this program sucks. Actually, there are VERY FEW cars that qualify for the program. Check it out for yourselves. Your current car has to get less than 18mpg combined city and highway. This is nothing but a waste of legislation.

Guest's picture
Guest

This is nothing more than paying off the unions. Not only are they requiring that the dealerships junk the old tradeins but they have to drain all the fluids and run the engine until it seizes rendering it useless for the sale of used parts. So when your old clunker needs a part you won't be able to find a used one.
I suppose the next Bill will be to shut down all the after market auto parts manufacturers.
$4500 dollars trade in on a $25000 car certainly doesn't make it affordable for people who can't afford groceries right now.
What a bunch of political bull this one is!

Guest's picture
d

In mid May I traded in my 97 dakota (16mpg) for a 09 Subaru (27+mpg).If I had waited a couple of months...........ARRGGGHHH.

Guest's picture
nancyjac

I see a lot of similarities and irony here.

But the bottom line is that this is a tempest in a tea pot, since there isn't much that meets the criteria.

How many people that have a car that is worth less than $3500/4500 that can afford to buy one costing $20,000 plus?

How many people that can afford a car costing $20,000 plus have a vehicle worth less than $3500/4500?

Odds are if you can afford to buy a new car, your current car is worth more than $3500/4500. And if you can't afford to buy a new car, the whole thing is irrelevant.

As for buying American, that definitely limits your choice to almost nothing. Most "American" cars are not mode in America. Chevys and Fords are mostly made in Mexico. Chrysler keeps selling itself to various European automobile manufacturers. So "buy American" is just another meaningless PC catch phrase.

Guest's picture
laine

this program sucks! I was going to trade in my suv for a new corolla and the dumb corolla dealership jacked up their prices and will not allow haggling at all on the price all because they think i am getting a deal from my 4500.00 rebate! Not so! Who would pay full ticket price for a brand new car? I even asked for them to come down only 500.00 from the ticket price and they said "no we are not discounting these cars at all" since they are able to sell the cars at full price to all those idiots out there, us smart people cant even get a deal! I walked away and said they can keep their stupid car! I would NEVER pay full ticket price for a car no matter what I was getting for my trade!!!

Guest's picture
JP

Who are we really helping? Can those who are out of work, because of our near depressive recession, brought on in part by Barney Frank and friends, who forced mortgage companies into making loans to those who they new were not truly qualified, afford to buy a new car of any kind? How many businesses is this really helping? What about the used car dealers? What about auto parts businesses? Seams that all their potential business from this law was crushed into a pile of metal. And where do all of these crushed cars go? Are they being sent over to china as scrap metal? Or are they being given to American smelters as a nice bonus of metal they didn't have to purchase. I haven't heard that that is the case. It would seem like a good idea to help as many businesses in this deal as they could. But I don't believe it is. It seems this bill is 'again' very selective to who it is really helping-at our, the tax payers expense, and that is to the auto labor unions of only certain auto companies, that also just happen to be political supports of our new president. Smells of a pay off to me! I would not support this program even if it saved me THOUSANDS of dollars.