Cash for clunkers: Is it right for you?

There is mounting interest in the cash for clunkers program officially launched today, as evidenced by CR’s reader feedback and media queries. Automakers are beginning to fire up their marketing engines, enticing shoppers to consider replacing their low-value rattletraps with shiny new models. But the cash for clunkers program works just for a small subset of would-be shoppers.

The government’s “Car Allowance Rebate System” (CARS) provides about $1 billion to jump-start car sales and send older, gas guzzlers to the junkyard for recycling. Running until November 1st, the program can aid motorists by providing up to $4,500 to put toward a new car. Sounds appealing on the surface, but is cash for clunkers right for you?

To qualify, the trade-in vehicle must:

• have been manufactured less than 25 years before the date you trade it in.
• have a “new” combined EPA city/highway fuel economy of 18 miles per gallon or less.
• be in drivable condition.
• be continuously insured and registered to the same owner for the full year preceding the trade-in.

To be clear, the mileage target is based on the combined EPA figure. Many CR readers have cited that they don’t achieve the official figure. As the saying goes, mileage may vary. This is especially true with an older vehicle, past its prime.

The value of cash for clunkers
In order for the program to make financial sense, your current vehicle should have a trade-in value that is well under the offered credits, $3,500 and $4,500. By electing to use the CARS program, the buyer is choosing the automatic credit in place of negotiating a traditional trade in. No voucher or registration is needed, despite what some news outlets or Web sites may claim.

The program may have particular appeal to those who own a vehicle that is on its last legs. A car that has a serious engine or transmission problem, for example, may be more expensive to repair than the vehicle is worth. Such a vehicle can be hard to get rid of. Here, cash for clunkers provides a means to get out of the junker.

Is this the right time to buy?
Chances are, consumers drawn to this program have an older car and are predisposed to hold on to vehicles for many years. This is the ideal profile for a late-summer shopper who could take advantage of year-end clearance sales, yet not worry about the rapid depreciation that model will have when the 2010 models arrive at the dealers weeks later. (Conversely, if you are inclined to trade-in a car every three to four years, and drive less than 15,000 miles a year, look to the 2010s.)

Also likely, someone who has held on to a car until is it nearly worthless is frugal, either by nature or by choice. With new car prices hovering around $28,000 on average, this may necessitate a loan for more than $20,000. It is important to consider you payment comfort level and the personal risk of a multi-year commitment. It may be that the more prudent decision, especially during tough economic times, would be to consider a used car.

At the dealership
For those looking to take advantage of the CARS program, proceed with caution. Make sure you keep each aspect of the dealership experience separate: shopping, price negotiation, trade in or credit, and financing.

Maybe it has been years since you purchased a new car—your skills could be rusty and your enthusiasm barely contained. That combination is like chum in the water. The sales staff is hungry, well trained, and practiced. You are no match. By keeping the process broken into distinct sections, you can focus on ensuring you get a good deal and understand the terms. Plus, it will help you to focus on negotiating that new-car price, without having the numbers blurred together. It would be a tragedy to just claim the credit and drive off, thereby leaving thousands on the table. After all, old-car owner, you are frugal.

Brush up on our new-car buying advice, and do your research online to ensure you are targeting good, eligible, safe, and reliable cars. We have compiled a list of Consumer Reports recommended vehicles to help get you started.

—Jeff Bartlett

Visit our Cash for clunkers special section. Also, check out our New car buying and leasing forum to share your experience and give advice to others making the trade.

Read:
Cash for clunkers: Recommended cars that qualify for a voucher
Cash for clunkers: The best gas guzzlers to junk
Cash for clunkers: Compare the fuel savings
Cash for clunkers: Fuel and owner costs
Cash for clunkers bill cuts fuel consumption–running the numbers

Comments

[Don]

What do you do if your car is not listed on fueleconomy.gov? The site lists models of my same car 91 - 95 and 98 - present but not my 97 model. Previous and current models get 15 or 16 combined so I must imagine mine qualifies, but dealers won't take it unless it is on the site.

[Mary]

This program would have been nice to know about in mid June when I was buying my new car. I could have gotten $4500.00 for my old truck - now I'm getting nothing. Consumer Reports should have had that this upcoming rebate was available July 1 and I would have waited to buy.

[Jeff Bartlett - Consumer Reports]

Sorry you missed this upcoming development. We have been covering it from its inception months ago, and all related information is available through a special section:
http://www.consumerreports.org/cro/cars/new-cars/resource-center/cash-for-clunkers/index.htm

[Mike]

Sounds like a good program to trade my old V8 Explorer. How long will it last? Defined Dollars or Time period? Do I need to act ASAP?

Mike

[Jeff Bartlett - Consumer Reports]

The program runs until November 1st, or until the money is spent. Hard to gauge the urgency just yet. However, you will have less selection of closeout 2009s as the weeks count down to the 2010-model-year vehicles arrive.

[2 Clunkers]

On Saturday I purchased a 2009 Chevy Malibu LT (2.4L w/6 speed auto transmission, 18" wheels, stability control, Onstar... loaded). Rated a Best Buy by Consumer Reports.

1. I got $4,500 for my 1999 Chevy Astro Van 225,000 miles (clunker).
2. I got a $2,000 rebate from GM for the Malibu.
3. I included a 2002 Nissan Xterra 115,000 miles (terrible gas mpg's). The dealer allowed $5,000 which is what the NADA July book says is a fair trade in value.
4. I got an extra $1,500 from GM under the "Nissan Challenge."

That's $13,000 in credits for a junker van and a Nissan Xterra I couldn't wait to dump.

The sticker on the Malibu was $24,800.
I got the Costco member price of $23,500.

That left me owing $10,500 plus tax, title and tags.

[Ryan]

The 2nd transmission on my 2001 Honda Odyssey died at 123,505 miles, approximately 90 miles from my house. Insurance towed it to the local Honda dealer where it broke down, but they would not help me without cash up front to look at the transmission. I ended up towing it to a VW dealership by my house, and got the $3500 CARS as a down payment on a car with a 0% interest loan. We almost went with a Honda Insight at the place it was towed to. Luckily, the transmission was able to get in reverse and creep into 1st gear, just qualifying it as drivable condition.

[Jay]

Congratulations to all who THINK they got a great deal. They are so resourceful that perhaps they will also find a way to avoid the future tax burden such ridiculous Federal programs will inevitably bring.

[everett whitney]

TO: Jay - " Tnink they Got A Deal ?"

It;s "everyone for him / her self anymore !"

This horrific amount of total borrowings will NEVER be paid back or off, so, best-to-enjoy-it while it 'lasts!"

Eventually - - very much sooner rather than later - - our debt auctions WILL stop having anyone show up to "buy" and THEN - Watch Out for the Inflation!

There are zero chances of this NOT Happening, IMO.

everett

[Matt]

I have a 1996 Honda Prelude...it is in decent shape but wouldn't get me more than $2k. http://www.fueleconomy.gov/Feg/noframes/12614.shtml claims that I get roughly 23mpg combined...there is no chance they will increase the allowable amount from 18mpg is there? And how would they gauge my gas mileage now? From that site or?

[Ohio Resident]

Right now you can get $3500 - $4500 for a qualifying car/truck, plus if you buy the right vehicle could get a 4000 - 4500 rebate from the manufacturer. The average saving is 8-10k dollars.
This is a scam !! I know it sounds good, however prior to the cash for clunkers program you could easily purchased a vehicle for 80-10k below sticker price. My wife and I just purchased a brand new '09 dodge journey about 4 months ago that had an msrp of around 27k dollars, we walked out of the dealership paying 21k, that includes tax, title, docking fee's and all. I had looked for new dodge journeys or for a pickup for several months prior to purchasing and found the same prices, 8-10k dollars off msrp. Dealerships were even advertising it. The way it use to work was.... The manufacturer offered around 4k dollars off in a rebate or incentive program and the dealership could discount the vehicle around 4k dollars, plus you would get around 1k dollars for a owner loyalty program and if you purchased around the end of the month, a dealer would usually dip into his dealerships hold back $$ and you could get another 500-1k off.
Dealerships stopped discounting, they are just giving the manufacturers rebate + cash fro clunkers money. Now this program is suppose to help the American people ??, how ?? I would say most people who couldn't afford to purchase a new vehicle prior to this, still cant afford it. Are you really getting 3500-4000 for that old vehicle? No, you could have purchased a new vehicle and kept your clunker prior to the cash for clunkers program, and still saved the same amount of money.
And this part really gets me fired up!! Well all of those old vehicles being traded in under the cash for clunkers are being destroyed as far as I understand, so for those Americans that can not afford a newer vehicle, guess what.. Your slowly being forced to purchase a new vehicle because our brilliant government is going to destroy a large number of still decent used vehicles. How does this help the small used car dealers? How does this help poor working class Americans?
Does everyone remember what Toyota did not long ago? There was a mass recall on Toyota pickups for a frame rust problem. They recalled practically every late model Toyota pickup, and gave 1.5% Kelly blue book "good" value to the owner. All of they recalled trucks were crushed and sent back to Japan or China for scrap steel, and FYI China has a overwhelming need for steel. Scrap steel is at a basically all time high in value due to China's need for steel. This created a need for Toyota owners to purchase a new Toyota pickup, however to be fair, the truck owners were not required to purchase another Toyota. But as a loyal owner, most probably did buy Toyota because they felt they were being treated good.
I don't know for sure, but if the cash for clunkers are being destroyed and China who the USA owes a lot of money to needs steel, well it doesn't take much to add 2+2!!

[Michael LaLlave]

I have a 1986 s-10 blazer, which meets all the requirements above except that the new epa estimated combined mpg is 20. I gather that disqualifies me from the voucher? Yes or No

Mike

[Ohio Resident]

Mike.

You are correct, your vehicle would not qualify.

[Rick Chancer]

I have a 1996 Jeep Cherokee 2 WD with combined mpg of 16.
I am interested in 2009 Jeep Liberty 2WD or 2009 Dodge Nitro 2WD, both with combined mpg of 18. Since that is 2 mpg better, as I read the requirements, I should qualify for $3500. I also understand that Chrysler will also give additional $4500 rebate even if you do not qualify for program, which means I could get $8000 total, if dealer wants to make a deal.

My only question is: Can you buy car with Costco membership pricing and steel get cash-for-clunkers rebate?

[tana]

Can you trade in a clunker for a scooter?

[Matt Mendenhall]

So, even though it says these clunkers are headed for the "scrap heap" what actually is being done with the clunkers? Are we allowing dealers to resell them, thereby destroying the basis for the program (getting gas guzzlers off the road)?

[Sandeep Sardana]

The requirements for prior ownership read that the car must be owned and registered under the same owner for at least a year before trading it in. Does this mean that the buyer of a new car must be the owner or can a friend's car be traded in for my purchase?

[wayne]

no one gets the full $3500 or $4500 as the clunker is still worth something and that has to be taken off the price. also the valvage worth is lost too as the dealer will be getting that unless you negotiate it in. The incentives that you normally could get before all this clunker stuff are all changed and or dropped. You should only be negotiating from dealer cost up, not msrp down to get the best deal + destination charges. Be wise, these guys will get you every time if you don't know what the bottom line is and they will insult you before you get the deal you really want!

[Steve]

We own 3 vehicles with 2 of them being 18 and 17 years old. Neither qualifies under this program since we bought reliable, efficient cars to begin with. My '91 Mazda B2600i doesn't qualify according to the gov't since it gets 19mpg - the same as what they list for the smaller B2200 engine. This wasn't true when I bought it - why is it true now?

So, for now, we hold on to our "ancient" automobiles for several more years. I feel those of us who were responsible in years past are being left out while those who caved into the marketing hype they "needed" a 5,000 lb V8 powered urban assault vehicle to run to the grocery store are being rewarded.

[Jay]

Steve - your story is being repeated across the USA. Under the current administration, no good deed goes unpunished. The horror stories of fraud and abuse will begin to surface, and it is your tax dollars that are funding this debacle.

[Kate D]

This is just another way for the administration to funnel funds to the UAW and the auto companies they now own. At taxpayer expense, of course.

[Russell]

I just wonder what will happen in about a year or so when people will realize that they can't afford this new payment no more and start thinking that they would rather drive theirs junk without any payments. I don't think many people are thinking how much money they will have to spend every month on those vehicles.: monthly payment of at least $200-$300 plus $120-$220 full coverage insurance, plus registration fee every year much higher than for the old one. So I guess with this program we will see plenty of people in the near future who will not be able to save no money because all of it will go for that new car. Tell me if I am wrong. And the banks will go down ! Just wait a little and see what will be the next government project toward destroying our financial system like they are destroying many, very good used cars now, without been able to provide them for those in need.

[flyover1]

We went car shopping last spring and again under the "clunker program". We found the bottom line (what we would end up paying)on the price of the cars we looked at was about the same. So effectivly the Government is just giving the car companies $ 3500/4500.
The unintended consequence to this program is that the price on used cars is going to sky rocket. That along with the lack of sales after the program, is going to result in people who wait getting a much better deal once the program is over.

[Michigan Resident]

This program is not about helping people afford cars or about saving the environment. It is all about selling cars. But since there was no chance of stopping the legislation from passing (it had popular support). I decided to purchase a car as a way of influencing where the money went. At this least this way I know what community received the money that me and my kids will be paying back in future tax increases. Did I get a great deal on my new Dodge Journey? Probably not, but I was satisfied with the 11K I spent. I would have spent a similar amount if I had waited and received the traditional incentives they used to offer. I was going to get rid of my 11 year old clunker next year anyway...

[Carol]

I am looking for a new car and called a few dealerships. They are saying they are no longer participating in the program because they have not gotten their money from the government, and if they do not receive the money they are supposed to, they are going to go after the buyers who traded in clunkers and charge them for the 3500-4500. Can they do this? This makes me leery to participate in the program.