Curious exactly how the Cash For Clunkers bill works? This handy chart and fact sheet provide all you need to know about trading in a beater Isuzu for a shiny new car.
At first, a look at the chart gives the impression there's a lot of money to be made by trading in your old car for a new one. Unfortunately, the compromises in this bill make it unlikely many people will be able to utilize it and save a great deal. There are two factors working against making this a worthwhile proposition and they both have to do with the logic of the bill.
First of all, operable vehicles are required and there aren't many people driving around with vehicles worth less than $1,500. Many old crappy cars, in fact, can still demand up to $2,500 on the open market. This means you're going to get, max, $2000 for your trade-in. The least valuable qualifying cars, of course, are actually the more efficient compact vehicles, which makes getting the necessary 10 MPG improvement unlikely.
The second problem, stemming from the first, is quantifying the number of people who actually drive around in cars worth less than $2,500 and can actually afford a new car. Our instinct tells us there aren't many people. This means people taking advantage of the program will, typically, have to be excited by the prospect of saving $1,000 or $2,000. These people should already have been swayed by intense discounting from automakers in recent months.
This isn't to say there aren't people who won't be able to get money from the program because, say, they have an old light duty truck and have been meaning to trade up to a newer car for a while. But the greatest number taking advantage of this deal may be people who can afford a new car and have, for one reason or another, decided not to buy one. These people will likely be lured in by dealers combining the $4,500 voucher with $2,000 in additional savings for big numbers like "$6,500 off a new Focus" that ignore the actual original value of the trade-in.
Either way, the promise of raising car sales by 1,000,000 units this year depends heavily on people with either poor mathematical abilities or an irrational fear of new car dealerships.
Cash For Clunkers Fact Sheet
The CARS program is established at National Highway Traffic Safety Administration under the Department of Transportation (DOT). DOT is required to promulgate regulations to implement the program within 30 days. The program will run for one year from the date the regulations are promulgated. The program is authorized for $4 billion which will provide for the purchase of approximately one million new vehicles.
Older Trade-In Vehicles:
* Must be in drivable condition;
* Have been continuously insured to the same owner for at least one year immediately prior to trade-in;
* Manufactured in model year 1984 or later; and
* Have a combined fuel economy of 18 mpg or less.
New Vehicles (divided in to 4 categories) - The mpg values are EPA combined city/highway fuel economy as posted on the window sticker of the new vehicle.
Passenger Cars: New passenger cars with mileage of at least 22 mpg are eligible for vouchers. If the mileage of the new car is at least 4 mpg higher than the old vehicle, the voucher will be worth $3,500. If the mileage of the new car is at least 10 mpg higher than the old vehicle, the voucher will be worth $4,500.
Light-Duty Trucks: New light trucks or SUVs with mileage of at least 18 mpg are eligible for vouchers. If the mileage of the new truck or SUV is at least 2 mpg higher than the old truck, the voucher will be worth $3,500. If the mileage of the new truck or SUV is at least 5 mpg higher than the old truck, the voucher will be worth $4,500.
Large Light-Duty Trucks: New large trucks (pick-up trucks and vans weighing between 6,000 and 8,500 pounds) with mileage of at least 15 mpg are eligible for vouchers. If the mileage of the new truck is at least 1 mpg higher than the old truck, the voucher will be worth $3,500. If the mileage of the new truck is at least 2 mpg higher than the old truck, the voucher will be worth $4,500.
Work Trucks: Consumers can trade in a pre-2002 work truck (defined as a pick-up truck or cargo van weighing from 8,500-10,000 pounds) and receive a voucher worth $3,500 for a new work truck in the same or smaller weight class. Vouchers are limited to 7.5 percent of total funds. There are no EPA mileage measures for these trucks; however, because newer models are cleaner than older models, the age requirement ensures that the trade will improve environmental quality. Consumers can also "trade down," receiving a $3,500 voucher for trading in an older work truck and purchasing a smaller light-duty truck weighing from 6,000 – 8,500 pounds.
[Source: Congresswoman Betty Sutton (D-OH)]