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Rebates, Tax Credits And Stimulating The Economy

The Obama administration has been giving us all sorts of stimulus packages this year that aim to stimulate spending in troubled sectors of our economy, and jumpstart consumer spending. First we had the tax incentives for new car purchases, and then the $8000 tax credit for first time homebuyers. Then we heard rumblings about the $8000 tax credit being expanded to $15,000 (which hasn’t happened yet).

Now the government is about to pass another measure that once again aims to help the struggling auto industry, and at the same time get some less efficient cars off of the road. The program is being called “Cash For Clunkers“, or ” Car Allowance Rebate System/CARS“. The program will cost about $4 billion, and the money is currently proposed to come from Energy Department funding included in the already enacted $787 billion economic stimulus package. The bill is now simply awaiting the president’s signature to be enacted.

Cash For Clunkers – Car Allowance Rebate System/CARS And How It Works

The aim of the program is to get older less fuel efficient vehicles off of the road. You trade in your old car or truck for a voucher towards the purchase (or lease) of a new vehicle that gets better mileage. The better the mileage of the new car, the more money you’ll get towards the purchase of a new vehicle.

You get either a $3,500 or a $4,500 voucher, depending upon the increase in mileage per gallon in old car to new car. To find out the MPG of your old car vs. a new car, check out this website.

The minimum combined fuel economy of a new car purchased under the program must be at least 22 mpg.

Small trucks and SUVs have to get at least 18 mpg.

Large trucks have to get 15 mpg.

The old cars will be salvaged once they’re turned in.

Here’s a graphic showing the increase in mileage you would need to attain in order to qualify for either the $3500 voucher, or the $4500 voucher. The amounts vary depending upon the vehicle type.

So what cars are qualified to be turned in for the program?

Must be in drivable condition. (That means you can’t tow in that truck on blocks sitting in your front yard)

Have been continuously insured to the same owner for at least one year immediately prior to trade-in. (That means you can’t just go out and buy a cheapo old truck to trade in)

Manufactured in model year 1984 or later, so 25 year old or newer cars.

Have a combined fuel economy of 18 mpg or less. Get anything more than that, and you’re out of luck!

How Do I Participate In the Program?

To participate in the program you just have to buy a new car from a participating new car dealership. The incentive amount that you qualify for will be applied to the new vehicle’s purchase price. You won’t receive an actual check or voucher. The program will run from July 1, 2009 to November 1, 2009.

In order to participate in the program car dealers will have to register with the National Highway Traffic Safety Administration (NHTSA), and it may take a few weeks for a list of participating dealers to be put together, so be patient! The government will be putting out a new website to give details about the program, and which dealers are qualified to give you the rebate.

When Does It Start?

The Cash For Clunkers Program is slated to take effect as of July 1, 2009, however, it still needs to be signed into law by President Obama. When it finally is signed into law the NHTSA will need to work out details of the program and set up a procedure for dealerships to get registered with the program. When all is said and done it may be a few weeks or more before buyers will be able to participate.

My Thoughts On The Program

To be honest I can’t see how this program will be very effective at any of it’s aims. I really don’t think there are that many old cars with bad gas mileage on the road anymore. According to one analysis by Arlington, Va.-based investment bank FBR Capital Markets, the parameters of the “Cash for Clunkers” bill are narrow, and the bill limits eligibility to fewer than 5 percent of U.S. vehicles. The participation rate in the program is probably going to be much lower than that. Even for those 5% of the cars that are still on the road, a good number of them may still be worth more than the voucher would pay for them. So what’s the point in getting the voucher? On top of that for many people just keeping their old clunkers makes more financial sense because it means they won’t have payment on a new car, even if they are paying slightly more for gas.

With unemployment hovering around double digits, most people just can’t afford to be buying new cars right now. (In fact, many people are now saying that most of the “clunkers” that are still on the road, are actually owned by people in lower income brackets, and they really can’t afford a new car anyway)

I’d much rather see the money spent on this program be used for things like paying down the national debt. What do you think of the program? Do you think it will be effective in it’s aims of taking less efficient cars off of the road? Will it give a boost to new car sales? Is the program set to be a failure right out of the gate?

UPDATE: The program has been suspended after less than 1 week. Find the details here.