You’ve probably heard about the new “Cash for Clunkers” bill that is offering up to $4,500 towards the purchase of a new car. The idea is to stimulate demand for new cars as well as raise overall fuel efficiency by promoting the trade-in of “clunkers” for new and more efficient vehicles. It is officially part of the Consumer Assistance to Recycle and Save (CARS) Act, which recently passed the House and is currently in the Senate.
It’s not finalized or sent to the President yet (don’t buy anything yet!), so there is still room for changes. However, here are the requirements in the House Bill:
Old Trade-In Vehicle Requirements
- Must be in drivable condition.
- Have been continuously insured to the same owner for at least one year immediately prior to trade-in. (You can’t just buy a $500 beater for the $4,500 voucher)
- Manufactured in model year 1984 or later. (mostly due to EPA mpg data not going back that far), and
- Have a combined fuel economy of 18 mpg or less. You can find your car’s combined EPA fuel economy at FuelEconomy.gov.
If you are trading in a “Work Truck”, defined as having a 8,500-10,000 pounds GVWR (gross vehicle weight rating), then your vehicle must be from model year 2001 or older.
Obviously, another common sense requirement would be that your car should be worth less than the $3,500 or $4,500 you qualify for, or else you could simply sell it yourself instead of going for the voucher.
Let’s check out our cars:
1995 Nissan Maxima
The first car I ever owned, which came to me in excellent condition in 2000. Besides the usual oil changes and stuff, I’ve replaced the starter and 3 out of the 4 power windows motors (annoying common flaw in this model). It is nearly 15 years old now and runs great. Edmunds says my car is worth about $2,500 (sold to a private party). $4,500 for it might tempt me.
My combined fuel economy is 21 mpg. Not quite gas-guzzly enough.
2002 Pontiac Grand Prix
Yes, I have a sad little orphan Pontiac. But I took advantage of its horrendous resale value and picked it up when it came off-lease at 3 years old at my workplace for cheap. The interior is really cheap-feeling, but you know what, it hasn’t run into any mechanical problems at all. The only thing that broke so far was a plastic air conditioner knob.
Edmunds says it is now worth about $5,000 Private Party, which means has depreciated less than $1,000 per year since purchase. My combined fuel economy is 21 mpg.
So I guess neither of our cars qualify, which makes me think that most “beater” cars won’t either. Think of the VWs, Hondas, and Toyotas out there. A 1985 Honda Civic gets over 30 miles per gallon! This law is mostly for SUV and truck owners, and you can qualify for a voucher with as little as 1 mpg improvement (for large trucks) to 4 mpg (for passenger cars). I don’t quite get it.
Indeed, just because you qualify, doesn’t mean you should necessarily go for it. You’ll get some fuel cost savings, but unless you pay cash you’ll also have a monthly auto loan payment. A new car also has higher insurance rates, and you’ll have to carry collision/comprehensive coverage.