The Cash for Clunkers program was recently launched and at first sight it looks like a pretty good program but I am a bit skeptical. Let me run down the details for you and you let me know what you think.
Basically the program is sponsored by the government and you get a voucher for a certain amount of money to put towards a new vehicle when you allow your old “clunker” to be taken and destroyed or what the government is calling “deactivated” by the dealer. The amount of money you get depends on the gas mileage of your “clunker”.
Here are some of the details of the program:
- Vehicle must be newer than 25 years old (the manufacture date, not the purchase date)
- Vehicle must get 18 miles per gallon (city/highway average I believe) or less
- Vehicle must be drivable
- Must be insured and registered to the same owner for a full year prior to trade-in
- The new vehicle being purchased must be less than $45,000
- The vehicle MUST be new (08, 09, 2010), no used car purchases
- Can be lease or purchase if lease is for at least 5 years
- There are different regulations for work vehicles
How the program works is if you purchase a new car that gets at least 4 but less than 10 miles per gallon higher than the “clunker” you get $3,500 towards the purchase of the new car. If the new car your purchase gets 10 miles per gallon higher than the “clunker”, you get $4,500 towards the purchase of the new car.
The credit can be combined with any dealer incentives such as “employee pricing” that was popular a few years age. The credit can also be combined with any other government incentives such as the hybrid vehicle credit.
There are other rules and more information you should read if you are considering this program so check out the official website here: www.cars.gov
My take on all this
While free money is always great, this money comes with a catch. You have to buy a new car to get any of the money. New car prices can range from $10,000 (Kia anyone?) to three or four times that (obviously there are more expensive new cars, but to qualify for the credit they must be under $45,000). So do you have $10-$15 thousand dollars lying around as well as an older car that you have owned for over a year that you would like to trade in?
Some may say yes to this and I think if you were already planning to buy a new car then go for it, it’s great to get free money just for going forward with your plans. But I think the problem with all of this is that the government is trying to give us incentive to buy new cars. They are saying this is to help the environment and get rid of older cars on the road, but I think it also has something to do with creating a spending buzz and fixing the economy.
For that reason, I think it is a bad idea. If you haven’t been planning on buying a new car, but after hearing about the credit are now thinking it may be a good idea, think about this: It still costs money! If you don’t have the cash lying around, you will have to finance the purchase. That means getting in more debt. Do you really need that debt?
Another thought that I found interesting is that the Kidney foundation that takes clunkers for free was worried at first about this program because it would take away from cars donated to them. Then after finding out how strict the Cash for Clunkers program is, they decided that many people that go in to buy a new car (and haven’t done their research) will find their old car doesn’t qualify, yet they will most likely buy a new car anyways and still have a clunker they need to get rid of. So people that aren’t getting the free money but are already at a dealership are still highly likely to buy a new car! Thus creating more average debt for the nation. How will that help the economy?
Another quick point that may be argued is that the program is similar to the home buyers credit, but in reality people don’t need brand new cars and their value is far more volatile than a homes value in the long run.
So if you have been planning on buying a new car, now is certainly the right time to do that but if you haven’t been planning on it and were spurred by this new program, it may be in your best interest to do the math and figure out if it will really be worth it for you. br>
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Tags: amount of money, automobiles, car purchases, cars, cash for clunkers, clunker, dealer incentives, debt, free money, gas mileage, government incentives, hybrid vehicle, kia, mileage, new car prices, voucher, work vehicles