Cash for Clunkers may be a clunker itself

Friday - 7/24/2009, 2:53pm EDT

Ed Zurndorfer

In certain situations, Zurndorfer says "you'd be foolish to take advantage of this."

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By Suzanne Kubota
Senior Internet Editor
FederalNewsRadio.com

ATTENTION CAR SHOPPERS! Before you head off to the local car dealerships hoping to get in on the Cash for Clunkers program, there is one very important piece of information you need to know: how much is your clunker worth?

Simply put, registered employee benefit consultant Ed Zurndorfer tells FederalNewsRadio, "If you're going to get more money in a trade-in, you'd be foolish to take advantage of this."

Under the Consumer Assistance to Recycle and Save Act of 2009, buyers may be eligible for $3,500 to $4,500 when trading-in Old Paint.

"Suppose," points out Zurndorfer, "your car is worth more than the voucher and you trade it in and you get more than $3,500 or $4,500 dollars. You can't get both the value of the trade-in and the voucher. You only get one. So if your car is worth more than $4,500, why in the world would you want to go for the voucher?"

J.D. Power Senior Vice President Gary Dills tells the Wall Street Journal, "Many consumers don't understand the specifics of the program, and if they do, they often find they don't qualify for the incentive."

According to NHTSA, administering the program through the Office of the Car Allowance Rebate System, consumers need to know the following things:

  • Your vehicle must be less than 25 years old on the trade-in date
  • Only purchase or lease of new vehicles qualify
  • Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
  • Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
  • You don't need a voucher, dealers will apply a credit at purchase
  • Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
  • The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate. (emphasis added)

And it's the scrapping of the vehicle that means your trade-in isn't really a trade-in as we normally think of it. Dealers, reports the Detroit News, "will have to disable the engines of clunkers" so they can't be re-sold. This means that in order to participate in the program, your vehicle can only be re-sold by the dealer as scrap.

With buyers doing the math and finding out they can get more for their trade-in than for scrapping that clunker, it raises the question, says Zurndorfer, "about how effective the program will really be in taking out the most polluting, inefficient vehicles because individuals can probably get more money for them."

The program is scheduled to run through Nov. 1, or until the $1 billion in federal funding runs out.

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On the Web:

NHTSA - www.cars.gov

Detroit News - NHTSA will spend $33 million running 'Cash for Clunkers'

Wall Street Journal - JD Power Upbeat On July Auto Sales; Down On `Clunkers' Impact

Edmunds.com - Cash for Clunkers Eligible Vehicles

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