Cash For Clunkers

On June 24, 2009, the President signed into law the Consumer Assistance to Recycle and Save Act of 2009 (CARS). The Act establishes a temporary program under which an owner of a motor vehicle may trade in their vehicle, if it meets certain requirements (general an average MPG < 18 and less than 15 years old), and receive a credit of about $3,500 to $4,500 from the dealer toward the purchase or lease of a NEW motor vehicle meeting certain requirements (cost less than $45,000; generally an average MPG > 22 for cars and about 15-18 for various trucks). The program is setup to run from July 1, 2009 until November 1, 2009 or until the funds appropriated by congress run out. The first funds of one billion ran out in the first four days. On August 6th, 2009 an additional two billion was authorized. The second round of funding ran out on August 24th, 2009. There will be no more funding; the program is over.

Customers Unexpected Liability

Some new car dealership have a clause in their paper work that would require the customer to pay back the $4,500 credit to the dealership in the event that the dealership does not receive it from the government. If the dealerships are employing deceptive practices on this, the customer may have a little surprise later when they find out they owe the dealership an unexpected $4,500.

Your Trade-In Benefit

Depending on the value of your "clunker", the benefit you receive from the credit will vary. Because you will not receive much for the trade-in allowance (about $300; they are required to scrap your car), the benefit from the credit will be completely phased out as the value of your vehicle approaches the credit amount ($3,500 to $4,500).

For example, if your clunker was worth $500, you may receive $300 for your vehicle plus the credit of $3,500 to $4,500. It would be like selling it for $4,800; a benefit of about $4,500. If your "clunker" is worth $5,000, you may receive $300 for your vehicle plus the credit of $4,500 at best. You are only receiving $4,800 for a vehicle worth $5,000. Any other incentives can be offered without your trade-in.

Vehicle Disposal

The CARS Act specifies that while many parts of the trade-in vehicle are permitted to be removed and sold, in the end the residual vehicle, including the engine block, must be crushed or shredded by an authorized disposal center.

Related Links

For your convenience, I have provided the following links:

  • Official CARS website. This is an easy place to go for information that includes an interactive utility to determine if your trade-in qualifies and if the new vehicle you want to purchase qualifies.
  • 2009 CARS Act. This is an official document that describes and contains rules regarding the program (136 pages).

Effect on Independent Dealerships

The National Independent Automotive Dealers Association (NIADA) is lobbying hard against this program. My personal feeling is the program has more effect on dealerships who sell newer models with low mileage as their customers will be lured away by all the new car incentives. Dealerships selling slightly older vehicles with higher mileage will not be effected as much because their customers may not qualify for financing and/or may still not be interested in spending that much (even after the incentives).

Consumers, in general, have been putting off the purchase of a vehicle (new and used). Vehicles are a near necessity and their purchase can only be put off for so long. Some estimates say that half the people purchasing new cars thru the "Cash for Clunkers" program were already considering purchasing a new vehicle anyway. It could be that the current sales of new vehicles will increase the supply of quality inventory in 2010 and 2011 when used car consumers are ready to buy again. Keep the faith.

I do not believe that there will be much in the way of "trickle-down" sales price changes as the duration of the program is just too short. Remember the first billion only lasted four days. By the time consumers are ready to purchase again (I personally believe this will happen in 2010 or 2011), any effect the "Cash for Clunkers" program had on car pricing will be long gone and overcome by other market forces (i.e. inflation, supply, etc.)

©Copyright 2018. All Rights Reserved. Designed by Olin Business Solutions.