Cash for Clunkers Program: What You Need to Know
As mentioned in past articles, I have been looking into purchasing a new car and had decided to put it off until next year. Well, the Car Allowance Rebate System (aka: Cash for Clunkers program) was passed and I started to think about it again. I thought to myself, I have a clunker, I need a new car: A + B = $4,500 rebate! What a great deal. Well that’s the way the ads on the radio, TV and my friends made it sound.
The unfortunate truth is I don’t qualify. I did a bit of research and found out a lot more than what the ads were saying. So before you find yourself at the dealership asking, “Wait what happened to my rebate?” be sure to read on.
What is the Cash for Clunkers Program?
- Started for a number of reasons including: stimulating the auto industry, reduce greenhouse emissions, reduce fuel costs, and increase energy sustainability
- Runs up through November 1st, or until funds run out. An extension was just passed for an additional $2 billion in funding
- Not all dealers are registered to be a part of the program so check with your dealer before going through all the steps
Does your car qualify?
- To qualify, your car must be less than 25 years old and have a “combined gas mileage” (average of highway plus city mpg) of no more than 18 mpg
- You can calculate your car’s “combined gas mileage” at http://www.fueleconomy.gov/feg/sbs.htm
- Some pickups and work trucks are not rated for fuel economy so it’s based solely on the age of the vehicle
- You also have to have insured your car for at least one year preceding the trade-in
- This does not apply in Wisconsin or New Hampshire
- Bring proof of ownership and insurance to the dealership with you
- The car has to be drivable
So what’s it going to take to get you into this car today?
- The rebate can only be applied to a new car or truck:
- With an MSRP of less than $45,000
- A combined fuel economy of at least 22 mpg
- Note- different truck categories have different requirements (Category 1, 2, 3).
- You can either buy or lease a vehicle and get the rebate. If you do lease the new vehicle, you must maintain the lease for a minimum of five years.
So how much are you going to save?
- If you meet all the requirements you will save either $3,500 or $4,500
- This is determined bon the type of new car purchased and how much better the gas mileage is, or the “improved gas mileage”
- $3,500: The improved gas mileage is at least four, but less than ten, miles per gallon higher than the traded-in vehicle
- $4,500: The new vehicle has a combined fuel economy value that is at least ten miles per gallon higher than the traded-in vehicle
- If you have a truck or SUV the weight will determine what type of discount you can expect.
- $3,500: Moving from a Category 2 to Category 2 with an improved fuel economy value of at least 1, but less than 2, miles per gallon.
- $4,500: If both vehicles are Category 2 trucks, with an improved fuel economy of at least 2 miles per gallon.
- $3,500: Credit applies to the purchase or lease of a category 2 truck if the trade-in vehicle is a category 3.
- You cannot trade from a Category 3 to Category 1 or passenger car.
- Your car will be destroyed and the scrap is estimated and added to the rebate so you could end up getting more. (If you’re sentimental, this might be a sticking point!)
- You might hear car dealers offer cash incentives in place of the program. However, cash incentives are independent from the Cash for Clunkers program and are on top of the $3,500/$4,500 savings.
- As a disclaimer, be sure to check with your state tax laws to see if you would owe taxes on the credited amount.
Unfortunately my old BMW doesn’t qualify because it gets better than 18mpg. If you are going to try to take advantage of the Cash for Clunkers program, be sure you meet all the requirements listed above and have everything you need when going for the test drive.
Jeff Studebaker, Investment Advisor
