What is Cash for Clunkers?

The official name for Cash for Clunkers is the Car Allowance Rebate System or “CARS.”  It is a 3 billion dollar government program that helps consumers buy or lease a more environmentally friendly vehicle by trading in a less fuel-efficient car or “clunker.”  The goal of this program was to have more fuel-efficient and cleaner cars on the highways.

What are Some of the Requirements?

However, in order to participate in this program, there are many requirements.  The car you are trading in must be eligible.

1. First, your car must be less than 25 years old and should get less than 18 miles per gallon.
2. Second, you need to be the owner of this car with a clear title and have a proof of insurance.  All of these requirements go back a year, you must have owned this car and had it insured for over a year.
3. Third, your trade-in car must be scrapped.  The dealer will disclose to you the amount of the scrap value.  With this amount 50 dollars will be subtracted for dealer fees, the remaining amount is your rebate.

How is it Affecting the Car Market?

While this should be a helpful stimulus project for the country, it is unclear if it is really helping.  First, there are so many requirements that the average person may not be able to benefit from this deal.  As explained above, your car must meet the requirements, but you must also have the appropriate credit to get a car.

You have to be able to acquire financing and be able to pay for this brand new car.  While this system does help an individual get a nicer car, some individuals are driving these older cars because they cannot afford a new car.  This may place an individual in a difficult situation, instead of helping them.

For the car dealerships, it is definitely keeping them busy.  However, it is also a cumbersome system for the dealers to follow.  What are some of the benefits?

• The local BMW dealers have been able to expand their target market.  For example with the cash for clunkers deal (up to $4,500) and other incentives, you can get up to $10,000 off the purchase of a new BMW.  With this discount, this car may be more affordable.
• In a California dealership, it was shown that they were averaging 40 sales per day, instead of the 12 average they usually had due to the interest in this program.
• In the Michiana area, it was reported that the calls on the program started before the official start date.  The most common sale in the Michiana area has been the older car worth only about $1,000 being traded for a new car.

What are Some of the Disadvantages?

The program is time consuming.  While the individual may already have their car, the dealership is still waiting on the government rebates.  After the dealer processes all the forms, it has to wait for the federal government to review, process the applications, forms and then release the money.

Also reported in Michiana are problems for the used car dealers and the salvage yards. While the salvage yards may be busy destroying the old clunkers, they may also be destroying cars that someone could buy.  For example, a 1995 Ford Explorer could meet the requirements of a clunker, but that could be a great cheap car for your high-schooler to drive.   With this program, the price of a used car is rising drastically.