Cash for Clunkers: What You Need to Know

Tucked into a military spending bill that just passed Congress and is now heading to President Barack Obama for signature is a piece of legislation meant to help get gas guzzlers off U.S. roads and replace them with new, more efficient vehicles. Called the Consumer Assistance Recycle and Save Act of 2009, or more commonly, “Cash for Clunkers,” the $1 billion program will provide a voucher of up to $4,500 (effectively just knocking that much off the price tag — dealers will get electronic payments from the feds) to help offset the cost of new car purchases or leases over the next five months.

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The version that passed Congress today represents a marginal win for makers and backers of more fuel-efficient cars. It beat out a competing cash-for-clunkers proposal that wouldn’t have taken fuel efficiency into account at all in the criteria for trade-in vouchers, but the version that passed today still has only modest MPG requirements. The government will in theory offer up to $3,500, for example, to a driver who trades in (at a participating dealer) a 16 MPG Hummer for a brand new SUV that gets a dismal 18 MPG.

As Business Insider points out today, there’s also the problem that if a car is worth more than the voucher for which it qualifies, the driver would be better off just taking the regular trade-in value. Vouchers don’t come as an addition to trade-in values because cars brought in under the cash-for-clunkers program have to be scrapped, so their trade-in value is essentially zero.

This raises questions about how effective the program will really be at taking the most polluting, inefficient vehicles out of the U.S. fleet, according to Business Insider’s Jay Yarrow:

We find it to be a stretch to believe that anyone driving around in a car that’s worth less than $4,500 can suddenly–in the middle of Great Recession–afford a new car. There’s a reason they’re driving around in a clunker, and no $4,500 discount is really going to do much to change that.

While the program is supposed to run July 1 through November 1, The U.S. Department of Transportation has 30 days to set regulations for the program — including how dealers should crush, shred or otherwise dispose of traded-in clunkers — after it gets Obama’s signature. Legislators, however, have laid out the basic framework. Here’s how it works:

Clunkers, Defined: You can only trade in drivable vehicles made in the last 25 years that have been continuously insured by the same owner for at least one year leading up to the trade in (so no junkyard finds or used cars bought to “flip”). Qualifying “clunkers” will have a fuel economy rating of no more than 18 MPG (combined city and highway ratings, which you can find on fueleconomy.gov).

How Much Cash?: New cars qualify only if they have a sticker price of $45,000 or less. So no Tesla RoadstersĀ  ($109,000), but a Toyota Prius ($22,000) could qualify, depending on your trade-in. And once the $1 billion appropriated for the program runs out (good for an estimated 250,000 vouchers), it’s over unless Congress extends the program.

clunkers-vouchersPassenger Cars: New passenger cars will qualify under the program only if they have a fuel economy of at least 22 MPG. If the new model gets four more miles to the gallon than the old car, you qualify for the $3,500 credit. With a 10 MPG improvement or more, you can qualify for a $4,500 credit.

Trucks and SUVs: For light trucks, SUVs and minivans, the new vehicle has to get at least 18 MPG and can offer as little as a 2 MPG improvement over the old one to qualify for $3,500. With a minimum 5 MPG improvement, you can qualify for $4,500.

Graphics courtesy Toyota and fueleconomy.gov

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