Advice and Tips on How Cash for Clunkers (or CARS) Works

For a Federal Program, CARS Fairly Straightforward for Trading Used Cars for New

What was once known colloquially as “Cash for Clunkers” has been given the official government name of CARS – Car Allowance Rebate System. As soon as President Obama signed the bill, scammers were already thinking up ways to take advantage of the system. Here’s an explanation of how the new law works and how you can take advantage of it legally.

(For more in-depth coverage of law, I have an explanation here.)

At its most basic explanation to get a $3500 credit:

• the used car has to get 18 mpg combined or less
• new car has to get 22 mpg or more and,
• the base sticker price has to be less than $45,000.

You can score the maximum $4500 credit if:

• the used car has a fuel economy rating of 18 mpg or lower; and,
• the new car has a fuel economy rating 10 mpg or higher than the used car being turned in.

Here's an example of how that works. A used car with a fuel economy rating of 14 mpg would receive the $4500 credit if the new car had a fuel economy rating of 24 mpg or higher.

The best way to determine if your vehicle is eligible:

• Go to the EPA’s website for fuel ratings: www.fueleconomy.gov .
• Click on “FIND AND COMPARE CARS” in the upper-left margin. Click on your car’s year and follow the prompts. This is an important step. Don’t assume your vehicle is going to meet the requirements. A 1989 Chevrolet Caprice with a 4.3-liter, V-6 engine is rated at 20 mpg overall. Its V-8 sibling just makes the cut off at 18 mpg.
• There is one problem, though. The 1984 figures are only available by downloading a text file from the fuel economy website. Those numbers don’t apply the new standards.

Keep in mind that you either get a government credit or you get a trade in allowance from your dealer. You can't get both because the car gets destroyed.

SUVS and pickups get treated differently than passenger cars.

According to the government:

• The value of the credit given for the purchase or lease of a category 1 or 2 truck also generally depends on the difference between the combined fuel economy of the vehicle that is traded in and that of the new vehicle that is purchased or leased.
• If the new vehicle is a category 1 truck that has a combined fuel economy value that is at least 2, but less than 5, miles per gallon higher than the traded-in vehicle, the credit is $3,500.
• If the new category 1 truck has a combined fuel economy value that is at least 5 miles per gallon higher than the traded-in vehicle, the credit is $4,500.
• If both the new and used vehicles are category 2 trucks and the new truck’s combined fuel economy value is at least 1, but less than 2, miles per gallon higher than the used truck’s combined fuel economy, the credit is $3,500.
• If both the new and the used are category 2 trucks and the new truck’s combined fuel economy is at least 2 miles per gallon higher than the usd vehicle, the credit is $4,500.
• A $3,500 credit applies to the purchase or lease of a category 2 truck if the trade-in vehicle is a category 3 (work) truck that was manufactured not later than model year 2001, but not earlier than 25 years before the date of the trade in.

Class 1 trucks are SUVs and pickups with a gross vehicle weight rating up to 6,000 lbs. Class 2 trucks have gross vehicle weight ratings between 6,000 and 10,000 lbs. Anything above that would be considered a work truck by the feds.

The government has this guideline for work trucks:

• A work truck, which is called a category 3 truck under the CARS Act, is subject to special rules. Work trucks are not rated for fuel economy by the EPA.
• The eligibility of work trucks for the program does not depend on combined fuel economy. Instead, work trucks may only be traded in under the program if they were manufactured not later than model year 2001 and not earlier than 25 years before the date of the trade in.
• Work trucks may only be traded in for the purchase of a category 2 truck or another category 3 truck that is of similar size or smaller than the traded-in vehicle.
• The CARS Act provides only for a $3,500 credit for trading in a work truck. Plus, only 7.5 percent, or $75 million, of the funds can be used for this aspect of the program.

One little quirk of the law that has not received wide dissemination is the vehicle must be driveable.

• The assumption on the feds part has been if the car is registered and insured for the past year it must be able to be driven.
• However, there’s a little quirk about clunkers that their owners can share with you. They can die quickly. One minute they’re running and the next they’re not.
• Work with your new car dealer to get your car in driving condition. The law doesn’t define driveable, but the implementing regulations probably will. Your dealer will know all of the details.

The most immediate piece of advice is to wait for the program to be implemented. The Department of Transportation’s National Highway and Transportation Safety Administration (NHTSA) advises, “While the CARS Act makes transactions on and after July 1 potentially eligible for credits under the CARS program, interested dealers and consumers may want to wait until all of the detailed issues that must be addressed in the implementing regulations are resolved and the final rule is issued. Issuance will occur around July 23.”

The government has outlined these as the key facts to know about CARS (with some additional explanatory comment to help clarify things):

• Your vehicle must be less than 25 years old on the trade-in date. To keep things simple, this means 1984 cars and trucks and newer.
• Only purchase or lease of new vehicles qualify. Don’t let yourself get involved in fraud unwittingly.
• Only new car dealers are going to be able to take part in this program. You can’t buy a used car that is eligible for this program.
• You also can’t buy a car or a truck from a dealership that is a program car that has previously been driven by executives.
• Check the odometer. The vehicle should have less than 50 miles on it.

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