Is the ‘Cash For Clunkers’ Program a Clunker?

Posted by P.W.R. in August 1st, 2009

The Consumer Assistance to Recycle and Save Program (C.A.R.S.) aka ‘Cash for Clunkers’ begins on July 24th. This is a government program that will provide between $3500 and $4500 to folks trading in a car with poor gas mileage to buy a new car with better gas mileage.

Only vehicles that are 1984 or newer, average 18 miles per gallon (mpg) or less (according to fueleconomy.gov), and have been registered and insured for at least a year will qualify.

The vehicle for purchase must be NEW. If it gets 4 mpg more than the ‘clunker’, it qualifies for a $3500 rebate, 10 or more and the rebate tops out at $4500. For a complete description and a list of eligible vehicles, visit www.fueleconomy.gov .

There are some opportunities here for certain buyers and potential hazards for others. If, after taking stock of all the factors in play and doing your research correctly, you decide this is for you, remember the most important rule of all:

DON’T BUY A 2009 VEHICLE!

Dealers will do their very best to convince you to take these aging units off the lot–it’s their job–but what they can never do is offer you a discount equal to a year’s depreciation. You will negate the entire amount of clunker money and rebate money and likely even more. A model-year will always carry massive weight in resale value, particularly down the road a few miles.

Many brands have 2010 models on the lot today, with many more on the way. Consider only these.

Who can this program help the most?

1) Folks whose personal circumstances have changed. Kids grown? Out of the house? This may be a great time to unload that minivan your friends tease you about.

2) Folks who are interested in a sub-$17k vehicle. While it is rarely advisable to purchase a new vehicle, at this price point, the weight of depreciation is eased a little. Kia, for instance, is also running a manufacturer incentive of several thousand dollars on certain brands. Between these two factors, you might be still be near actual value after a year! Not two, though.

3) Folks who want a Toyota Prius. What can we say? Prius recently held near original retail value for over two years, a sublime performance. Also, going from a MPG ‘clunker’ to a ‘best mileage ever’ Prius should grant you induction into the Carbon Footprint Hall of Fame.

Who might this program harm the most?

1) Folks who might be blinded by what seems like a check for thousands of dollars being handed to them. It really would be a check for thousands of dollars if it included used vehicles as a purchase option. As this bill is written, the objective is not to help out bill-challenged consumers. Not at all.

2) Subprime and limited budget buyers. By providing these funds directly to the dealer, there will be an opportunity for some dealers to obtain funding for folks who otherwise may not qualify.

Dealers may be able to show these funds as a ‘down payment’ or the like to make the deal look less risky to lenders, and this can easily encourage folks to bite off more than they can chew. For more on how this dynamic can lead to difficult circumstances for buyers and banks and others, google ‘worldwide financial crisis and real estate meltdown of 2008′…

Many folks happen to love their clunkers, which is often NOT a ‘clunker’ at all. It is either highly useful or powerful or both. If you love it, keep it! $3500 is not going to seem like a lot of money when you are trying to get up that hill, the one you used to JUMP over like them Hazzard boys.