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Cash for Clunkers: Uncle Sam May Buy Your Car

May 13th, 2009 · 18 Comments

Written by J.P. Wicklein

     The Obama administration and Congressional Democrats are working on the final details of the government’s plan to give you up to $4,500 toward the purchase of a new car – when you trade in a qualifying, used car.  Here’s how you can qualify under the current plan:

1)   Your trade-in has a combined city/highway fuel economy rating of less than 19 miles per gallon.  (Check www.fueleconomy.gov to lookup your car’s mpg.)

 

2)   Your trade-in has been registered in your name for at least 1 year.  (This prevents you from buying a junkyard car just for the trade-in credit.)

 

3)   The new car you buy must have a combined city/highway fuel economy rating that’s at least 4 mpg better than your trade-in.  If the new car gets 4-9 mpg more than your trade-in, you’ll qualify for a $3,500 credit.  If it gets at least 10 mpg more than your trade-in, you’ll be eligible for the full $4,500 credit.  (Note:  Different rules apply for trucks.)

 

4)   The new car must be priced less than $45,000.

Frequently Asked Questions

     Will the government give me a tax credit or send me a check?  Neither.  Under the current plan the government will pay the dealer directly.

     If I use this credit am I no longer eligible for other incentives such as a sales tax deduction or hybrid vehicle tax credit?  No.  Taking the “clunker credit” does not disqualify you from cashing in on any other incentives. 

     When does this “clunker credit” take effect?  Congress has yet to make it law.  So, nothing is official and the plan could still change.  Under its current form, though, the “clunker credit” would be valid for one year from the date of passage.  There’s a possibility that the credit may be retroactive for a period prior to the date of passage, although that has yet to be determined. 

     I drive a very used 2000 Toyota Celica.  It’s only worth a couple thousand dollars and may not hold out for much longer.  So, I decided to find out if it qualifies.  My Celica has a combined city/highway fuel economy of 27 mpg.  Unfortunately, I wouldn’t qualify for this credit.  Perhaps your car qualifies…

     Stay tuned.  I’ll post an update once more details of the “clunker credit” are released, or once it becomes law.  In the meantime, if you’d like to receive future Financial Fellow articles via email, for free, click here.

Source:  May 12th 2009 edition of USA Today

Photo by:  circax

Tags: Save Money · Uncategorized

18 responses so far ↓

  • 1 Thomas Jane // May 13, 2009 at 8:59 pm

    Thanks for the info on the cash for clunkers! I’ll keep my eyes peeled to see how the final bill turns out. I’ve got a Winstar minivan that qualifies. Total piece of junk. Fantastic!

  • 2 Brian // May 26, 2009 at 10:22 am

    John,

    First off, when you say “new car”, does that mean new to me or does that mean a brand new car?

    Secondly, I think this plan is crap because, yet again, the United States Government is promoting debt. And surprise surprise, this time it isn’t the Republicans. I understand there is a certain amount of money that needs to change hands in order to stimulate the economy, but Americans are generally stupid and therefore stupid decisions will be made and justified. In this case, people will justify buying a new car, even if they don’t need one, to take advantage of the credit.

    Until we stop spending more than we have, we will continue to fall as a nation. It would be sad to end an empire based on greed, but then again, isn’t that why most of them fall?

  • 3 Financial Fellow // May 27, 2009 at 6:00 am

    Brian -

    It does mean a brand new car - not new to you.

    I hear ya on promoting debt. My only hope is that folks that were planning on buying a car anyway just take advantage of this deal - assuming they qualify. You’re right, though, I’m sure some folks with a perfectly fine used car (admittedly with poor mpg’s) will trade it in and take on more debt to get a new car.

    I’m just getting tired of seeing the government pull out all the stops for the domestic car companies. They insistence on keeping a dying business afloat is a bit much.

    Thanks for your comments!

    John

  • 4 Marjorie // May 28, 2009 at 11:08 am

    The fuel economy.gov only goes back to 1985. What would they use for mileage for a 1984 or older car?

  • 5 Best CD Rates // May 28, 2009 at 5:18 pm

    Good question Marjorie. My dad and I have been waiting for this program to pass as we’re very anxious to get rid of an old Mercedes clunker from pre 1985. I wouldn’t mind a brand new Jeep.

  • 6 Financial Fellow // May 28, 2009 at 9:05 pm

    Marjorie -

    First off congratulations if you are driving a car that’s at least 25 years old. Way to get bang for your buck!

    After reading your question I spent some time investigating the answer. Unfortunately, I couldn’t find one. Since the legislation still needs to be passed I’m guessing that not all of the details have been worked out. (Your 1984 question being one of the details.)

    As the legislation makes its way through Congress and is eventually passed (assuming it gets passed) I’ll post an update. I’ll be sure to keep an eye out for an answer to your question as well.

    Thanks,

    John (Financial Fellow)

  • 7 Donna // Jun 1, 2009 at 11:15 am

    My daughter’s 1994 Landover was running but is now at the local garage and not running at all due to computer issues. We do not have a Land Rover dealership in our town and the closest one is 120 miles.! Does the car have to be working at the time of the trade? It had been fine till two weeks ago.
    HELP!

  • 8 ohreal // Jun 1, 2009 at 5:55 pm

    From what I read so far, the battery in a hybrid can cost $7000 to replace. That was a big turn off for me when I bought a new car in 2007. I wish the gov have a similar program for people to tradein for a hybrid. That would encourage more hybrid sold and maybe cost of hybrid will come down and also make their batteries cost less

  • 9 Financial Fellow // Jun 1, 2009 at 7:34 pm

    Hi Donna -

    To be honest I don’t know if the car needs to be working or not. The details of the bill have yet to be finalized. My guess (and this is a total guess) is that the rules - once they are finalized - will accept cars that are not running. (Provided they are still registered).

    From what I’ve read the government is looking to take the cars that were traded in off the road, sold for scrap, etc… Hence I suspect it won’t matter if your daughter’s car isn’t working.

    The cash for clunkers credit has been out of the news for the past few weeks - until today.

    Sounds like the U.S. Senate has taken it up again: http://money.cnn.com/2009/06/01/news/economy/cash_for_clunkers/?postversion=2009060116

  • 10 Financial Fellow // Jun 1, 2009 at 11:06 pm

    ohreal -

    $7,000 to replace a hybrid’s battery? Wow! That is expensive. I wonder how often something happens to a hybrid car’s battery that it needs to be replaced, and at what mileage?

    I agree that it would be nice if they’d let you trade in any car - not just cars that get less than 18 mpg…

    Thanks for the comments!

    John (Financial Fellow)

  • 11 Brian // Jun 2, 2009 at 11:06 am

    Actually, I have the answers on the hybrid. I have a 2004 Honda Civic Hybrid. I was having some general maintenance done this past week and asked the tech some questions so that I could be prepared for the worst.

    1) Honda says the life of the battery is approximately seven years, although they still see Honda Insights on a regular basis with the original batteries that are much older than that.
    2) The life of the battery has nothing to do with the mileage on the car. In fact, driving the car less often is hard on the batteries.
    3) On the Civic, the battery costs $ 3500 to replace. Yes, this is a lot, but please stop to remember that I have put about 20 dollars worth of gas every two to three weeks into the car since 2004. That’s $6- $10 a week for fuel costs and I drive A LOT. The car has 113K on the clock. I don’t know very many other cars with fuel costs this low.

    Other than routine oil changes and maintenance, the car has cost me less than $1000 for repairs since 2004, and Honda has paid for several of them even when the warranty has expired.

    Trust me. While there may be some expensive repairs on these vehicles, they are a HUGE cost savings, especially compared to a Yukon or something like that. They also take some getting used to, as they are all about economy and not luxury. If you want an Escalade or a BMW 750Li, then you are obviously gonna put out some cash to maintain those vehicles. But if you wanna pinch pennies, the hybrids are the way to go.

  • 12 Financial Fellow // Jun 5, 2009 at 9:52 pm

    Brian -

    Thanks for the wealth of info on hybrids! I’m trying to decide what my next car will be and I’m all over the map. I’m strongly considering a hybrid, though. That said, hopefully my current car will last a few more years.

    John

  • 13 Matt Carrier // Jun 9, 2009 at 4:26 pm

    I lease a 2007 ford F-150 and the lease is up in about 6 months. I was wondering under this plan would I be eligible for the tax credit. Any answers will be great.

    Thanks,
    Matt

  • 14 Financial Fellow // Jun 10, 2009 at 6:40 am

    Matt -

    Since the plan still needs to be finalized I can’t give you a definite answer yet. That said under the current plan you would not be eligible since your F-150 is leased. To qualify you will need to own the car you trade in.

    Hope this helps. Thanks for your question!

    John (Financial Fellow)

  • 15 Michael // Jun 19, 2009 at 10:56 am

    My car gets combined 20 mpg. Am I just out of luck, or is there any flexibility?

  • 16 Financial Fellow // Jun 19, 2009 at 7:55 pm

    Michael -

    Yes, as the law is written right now you are out of luck. No flexibility on the 18mpg rule. Don’t feel too bad, though. You are in good company.

    The clunker credit was just passed by Congress. Obama is expected to sign it into law shortly. When he does, I’ll post a detailed update.

    Thanks for the question!

    John (Financial Fellow)

  • 17 Don // Jun 27, 2009 at 9:37 am

    I have a 1996 Audi A4 Quattro with 200,000 miles. My mpg combined city/highway has never been more than 18 and usually averages 16.5 to 17.5, but the epa combined shows 19, so I guess I cannot appeal their rating and am out of luck for the program. I need a replacement and the $4500 would allow me to purchase a new car, without the credit I cannot. I assume there is no appeal process.

  • 18 Financial Fellow // Jun 30, 2009 at 7:42 am

    Don -

    My apologies for not responding to your question sooner. I’ve been on vacation. As I understand it there isn’t any sort of appeals process in the works. If your car doesn’t meeting the EPA combined amount you are out of luck.

    That said, all of the details of the “Clunker Credit” have yet to be finalized. The president recently signed the bill into law so, it is going to happen. The website http://www.cars.gov is the official “clunker credit” website. All the details of the “clunker credit” are expected to be made available on that government site on July 23rd. I’d suggest holding off on any major moves until that information is made available. Hope that helps!

    John (Financial Fellow)

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