Cash for Clunkers a.k.a. Car Allowance and Rebate System

Now that Cash for Clunkers is over, consider donating your car. Also, information on whether Cash for Clunkers affects your taxes.

In an effort to stimulate the economy and improve the national emissions (and save people gas, I suppose), the government created and passed CARS – the Car Allowance and Rebate System. This bill means that people who own vehicles with bad mileage will be able to trade them in, buy a new vehicle that gets better mileage, and get a credit applied at the dealers toward their new purchase. The trade-ins will be scrapped.

So if I trade in an old station wagon that was getting 18mpg and get a new Honda Civic, I should be able to get a $4,500 subsidy in addition to whatever I got from the trade in. Or if I bought a somewhat less fuel-efficient car, I could still get a $3,500 subsidy (details below).

Short overview of the program:

1. The car must get 18mpg or less and have been made after 1984.
2. The car must be in your name and you must have owned it for at least 1 year.
3. You must buy a more energy-efficient, brand-new car (costing less than $45,000) to replace it.

What sort of cars qualify?

You can’t just trade in your old car and get the money. Nor can you use the rebate to buy a used car–even a lightly used one.

New cars must be:

1. 2008-2010 models;
2. unused;
3. get at least 22mpg for cars, at least 18mpg for small light-duty trucks, or at least 15mpg for large light-duty trucks;
4. and cost less than $45,000.

No luxury cars, no used cars, no older cars (though it seems doubtful that older models would be available as new cars).

The old car must be:

1. newer than 1984 – no classic cars;
2. registered in your name for at least a year;
3. insured for at least a year;
4. and drivable.

It can’t be a car that was on blocks on your lawn, uninsured and undrivable but maybe good for scrap. Even if you tinker with it enough to make it run, if it wasn’t insured it still doesn’t count. This program specifically targets cars that are already on the road.

How much of a credit will you get?

The credit (subsidy) you’ll receive if you use the CARS program is prorated, based on type of vehicle and fuel efficiency improvement.

For cars:

• For the minimum possible fuel efficiency improvement, 4mpg (from 18mpg requirement for the trade-in and 22mpg for the new one), you’ll get a $3,500 credit on the new car.
• For an improvement of 10mpg, you’ll get a $4,500 credit.

For small, light-duty trucks:

• For a 2mpg-4mpg improvement, a $3,500 credit.
• For 5mpg improvement or more, a $4,500 credit.

For large, light-duty trucks:

• For a 1mpg improvement, a $3,500 credit.
• For a 2mpg improvement or more, a $4,500 credit.

Frankly, I’m not very impressed with the mpg improvement requirements for larger trucks. But I don’t have much experience with large trucks, so I’m not sure what kind of mpg is common.

How do you know your car’s mpg?

Obviously, they can’t test each car to see what kind of mpg it’s getting in its present condition. So the program will used listed mpgs which are available on this fuel economy website. You start by selecting your car’s year and move forward from there to select make and model, and possibly model specifics.

The fuel economy listing will show your car’s combined mpg, which is what will be used in the calculations. Our 2004 Nissan Sentra has a combined mpg of 27.

This means that even if your car is only getting an effective 17mpg, you may be listed at 19mpg and therefore not be eligible. So be sure to check before using the program.

How long will the cash for clunkers program last?

Transactions on and after July 1, 2009 are potentially eligible, but the program will not be implemented until late July 2009, around the 24th (according to cars.gov). The program ends November 1, 2009 or when the money allotted to it runs out.

Cash for Clunkers Dealers

Dealers have to be registered in order to participate in the program. Call your prospective dealer ahead of time and ask if they’re registered. You can also check cars.gov, which should be posting a list by July 24, 2009.

This has been a lot of information, so I’m going to reserve my thoughts on the program for a future post. For some other takes on the CARS (cash for clunkers) program, here are a few good posts:

• Beware of Cash for Clunkers Scams @ Military Finance Network
• Pros and Cons of Cash for Clunkers @ Moolanomy
• Cash for Clunkers Explained With a Chart @ Free From Broke
• Common Questions About Cash for Clunkers @ Bible Money Matters
• Assessment of Cash for Clunkers @ Frugal Dad
• Overview of Cash for Clunkers @PT Money
• Info About Cash for Clunkers @ Bargaineering