Drive Time
Don't Count on Cash for Clunkers
The long-anticipated program launches July 27, but it doesn't benefit very many car buyers
By Jessica L. Anderson, Associate Editor, Kiplinger's Personal Finance
June 18, 2009
If you were waiting to buy a new car or truck until the “cash for clunkers” program became reality, the time has come. But be ready to be disappointed. Not many “clunkers” qualify for vouchers, and even if yours does, you may get a better deal selling it on your own.
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The idea behind the program -- officially known as the Car Allowance Rebate System -- was to spur auto sales, replacing older gas-guzzlers with more fuel-efficient vehicles. But the legislation as it stands won’t achieve either goal very well.
How It Works
To qualify as a clunker, your vehicle must have been manufactured in 1984 or later, be registered and in use for at least one year, and get 18 miles per gallon or less in combined city and highway driving (see www.fueleconomy.gov to check the official mileage of your vehicle). It must also be drivable.
If your car qualifies, you can get a voucher toward a new, more fuel-efficient model with a base price (before options) of less than $45,000. Trade your old car for a new one that gets at least 22 mpg, and your voucher is worth $3,500. If the new car gets 10 mpg better than the old car, the voucher is worth $4,500.
For light-duty SUVs, vans and pickups to qualify for a $3,500 voucher, the mileage on the new vehicle has to be 18 mpg combined and 2 mpg better than the old one. If the new vehicle does 5 mpg better, you can claim the $4,500 voucher. For heavy-duty vehicles—those rated at 6,000 to 8,500 pounds for gross vehicle weight—the rules are even more lenient. The $3,500 voucher is available if the new vehicle gets at least 15 mpg combined and just 1 mpg better mileage than the old one. You need only 2 mpg better to qualify for the $4,500 voucher.
Work trucks (gross vehicle weight rating of 8,500 to 10,000 pounds) are not rated for mileage; if you own one, the only requirement you have to meet is that your vehicle be a 2001 or older model, and the voucher is $3,500.
The voucher reduces the cost of the new car and is the only trade-in money you’ll see. Your old car gets scrapped.
Few qualify
At first glance, 18 miles per gallon sounds reasonable—if your car gets less than that in combined mileage, it’s a guzzler, plain and simple. But few cars qualify, unless they have large engines and are meant to go very fast. SUVs and trucks are the real culprits, so the plan is skewed heavily in their favor--and benefits the Detroit automakers who sold a lot of SUVs and trucks.
For example, if you’re hoping to trade in a 1997 V6 Ford Taurus (rated at 21 mpg combined), you’re out of luck. But if you have a V8 Taurus of the same vintage (18 mpg combined), you could qualify. On the flip side, all but one of Ford’s SUVs, trucks and minivans from that year qualify as clunkers.
Kelley Blue Book created a list of models going back to 1990 that get low enough mileage to qualify and are worth less than $4,500, and came up with only 974 for the past 19 years. The results skew toward older cars, naturally, because they’re worth less—93% of the models are seven years old or more. In fact, there are fewer than 70 models that are of a more recent vintage.
The list was also revealing in how heavily skewed toward Detroit the legislation will be. (It has been approved in the House and Senate and is awaiting President Obama’s signature.) Some 62% of the cars on the list were from the Big Three, with General Motors’ vehicles making up 28% alone. The vouchers don’t replace or cancel out other incentives, such as the hybrid tax credit or discounts from dealers or manufacturers. You can also deduct the sales tax, if any, on your federal tax return.
The program will be in effect for one year, starting whenever the regulations are finalized, and may apply retroactively to qualified purchases since March 30 of this year in the form of cash rebates.
The program is in effect until November 1 (unless the program runs out of money), and you may qualify for a cash rebate for a qualified purchase since July 1 of this year.
Even if you have a so-called clunker, if it’s worth more than the voucher you’ll get (to find out what you might get for it, go to www.kbb.com), trading it in would be a mistake. You could sell it on your own--and use the cash to buy your new ride.
Reader Comments (13)
Posted by: Ruth Cavanaugh at 06/19/2009 06:11:03 PM
Is this benefit ($3500 or $4500) taxable income to the buyer of the new car?
Posted by: Lawrence at 06/19/2009 08:01:13 PM
I have a 1984 Ford Ranger rated at over 20 mpg. Maybe new it was 20 mpg but I am lucky now to get 15 mpg out of a carburated worn out engine. So I do not qualify for Cash for Clunkers!!
Posted by: Jessica Anderson at 06/22/2009 12:45:05 PM
Hi Ruth, this is Jessica Anderson, author this article. Since the legislation has just been passed and the details not finalized, the best answer right now is, "we don't know." In the days to come we hope to have more information as it's made available. Please come back to Kiplinger.com for more details.
Posted by: Amy Charles at 06/22/2009 10:59:27 PM
Wow. So let me get this straight -- along with bailing out people who failed to do the math before buying a house they couldn't afford, we're now giving money to...select SUV, Jeep, and minivan buyers! I love it. What next, cash for obesity?
Posted by: Amazing! at 06/22/2009 11:56:10 PM
I average 20-24 mpg with my 1996 Jeep Cherokee with 200k+ miles, but the EPA rating is a measly 16 mpg! By the by, Amy, I agree that it's a silly program, and certainly a waste, but your comment is insulting. I'm a very active individual, hiking, cycling... basically lots of things that require hauling equipment in places cars don't really like. My friend wrecked his Taurus taking it up a mountain. So I bought a used Jeep for a bargain, and I've put another 100k on it. I also like paying a mere $410 a year to insure it. I made a wise decision financially, and while I certainly don't deserve this windfall I'm not an idiot simply for owning a SUV. Don't feel too bad for your ...comment though Amy... the way things are going thoughtless commentators will get the next round of bailouts.
Posted by: Jessica Anderson at 06/26/2009 02:40:17 PM
This is Jessica Anderson, author this article, with two updates. The bill was signed into law this past Wednesday, June 24. The National Highway Traffic Safety Administration now has 30 days to implement the program, now called CARS (Consumer Assistance to Recycle and Save), and they advise contacting a dealer in mid-July. The vouchers are to be tax-free, as they will not be treated as gross income, according to a release from Thomson Reuters. Hope this helps.
Posted by: Charles Stoffers at 06/30/2009 04:33:11 PM
Ahhh ... another wonderful government solution ! The numbers aren't even accurate. I was surprised to find out that my 2000 Chrysler 300M is rated at 19MPG combined, (16 city and 24 highway), since I have averaged 13MPG in the 8 years I have owned it. I don't think I've done better than 18MPG highway even when it was new. This clunker will not be replaced under this program.
Posted by: reeb zee at 07/11/2009 08:24:51 PM
our great grandchildren will be paying for all this bailout baloney. I say let moodys and s&p pay for all the problems we are having.
Posted by: Brian at 07/22/2009 10:59:37 AM
Four problems with this legislation. 1. In this economy, encouraging people who do not need - and cannot afford - a new car to get one, makes no sense. 2. Leases must be at least 60 months. Which companies offer 5 year leases? 3. It is not restricted to US-made cars. Do Honda, Toyota, Nissan and Kia(and even BMW/Mini) deserve help from US taxpayers as much as GM, Ford and Chrysler? 4. If somebody only drives 3 or 4 thousand miles a year, how much gas will be saved by trading a guzzler for a miser?
Posted by: David at 07/25/2009 10:52:07 PM
Brian, It's a fact that since 2000 the Big 3 have continuously cut American jobs while 'Foreign' auto-makers have steadily increased American jobs. Besides, talking about 'deserving' help and all... I wouldn't say that GM deserves anything considering they're horrible decisions over the last 2 decades. They've become stale and overconfident, and now we're rewarding them with the Good ole boy system again.
Posted by: David Vidal at 07/30/2009 08:04:06 AM
Another fine example of a badly planned government program. My parents have the grandaddy of all clunkers which I have been trying to get them to get rid of for some time (1994 Ford Bronco). Finally convinced them, using C4C as the deal breaker, however because of the insurance rule, are disqualified. Back in March, my dad dropped the insurance on the vehicle temporarily, since he received a company car, and in order to save some money. He wasn't going to need the Bronco for a few months so it made sense then. They have owned the thing for 15 years, with enough expired reg & insurance cards to prove it. I have spoken to a few dealers and the only thing this program has created is an onslaught of tire kickers. Some people realize no matter how much the rebate is, a new car purchase is not an option right now. Others, like my folks, are ineligible because of a stupid clause...Hopefully the gov't will wake up and add a provision expanding the qualification rules. Otherwise, very few will qualify for C4C, and the time and ink used to push the bill were a waste. FYI, as of the date of this post, I have spoke to 5 dealers (Toyota, Ford, Mazda) who all mentioned that they are yet to make a sale using the bill...
Posted by: David Vidal at 07/30/2009 08:14:07 AM
While on the subject, I'm in a similar situation as Lawrence (June 19 post). My car does not reach the 18mpg limit, currently rated at 20mpg. But its like Lawrence says, maybe when new. The car is over 10 years old, and something I could definitely depart with. The bill limit is fine, but a provision should have been added to include other cars and situations. I would be interested in a Jetta TDi, which means the difference between my trade and the new car would be 20mpg. Sounds environmentally friendly to me, and wasn't that the MO of the bill anyway?
Posted by: Jan at 07/31/2009 07:48:04 PM
I agree, only a few people can qualify. My old Taurus from the web states 19 mpg. It certainly does NOT get that now. Even when I checked the NEW Taurus, it states it gets 18 mpg. Go figure. They know more people would qualify at 19 mpg rate, so that is why they settled for the 18mpg or less. They really dont want to help more people be able to buy cars and get the economy back on a role or they would have upped the mpg so more people can qualify.