Thought #36 July
2009
Author: Bill Thurston
Cash for Clunkers
What is this Program?
Our federal government will give you a cash discount on your trade-in when buying or leasing a new car. Of course you need to meet certain requirements that I will explain. The program runs through Nov. 1 2009 or when the funds are exhausted, whichever comes first. There is $1,000,000,000 appropriated to the Secretary of Transportation for this program of which up to $50,000,000 is
available for administration. Another name for this program is the Car Allowance Rebate System or CARS.
How Must is the Cash Discount?
First of all, it is a voucher so you don't get cash. You get a discount for an amount of cash which is either $3,500 or $4,500 depending on the vehicle you purchase/lease and your trade-in.
How do I Know if I would Qualify?
There are five criteria to fulfill in order to qualify:
1. The new vehicle you are looking to purchase must have a manufacturer's suggested retail price of not more than $45,000. You can add options to take the price well pass $45,000.
2. If you are leasing, the lease period must be not less than 5 years.
3. The passenger automobile, truck, or van you are looking to buy/lease must meet certain gas mileage requirements.
a. If you are looking to buy/lease a passenger car, it must have a combined fuel economy value of at least 22 miles per gallon. The combined fuel economy value is found on the sticker of each new automobile or at http://www.fueleconomy.gov/.
b. If you are looking to buy or lease a category 1 truck, meaning a non passenger automobile, it must have a combined fuel economy value of at least 18 miles per gallon.
c. Some category 2 trucks, meaning a large van or a large
pickup, qualify and need a combined fuel economy value of at least 15 miles per gallon.
d. Some category 3 trucks, meaning a work truck, qualify.
More specific information on specific trucks can be found at: http://www.cars.gov.
4. The vehicle you are trading-in must meet certain requirements.
a. The trade-in must be in drivable condition.
b. The trade-in must have been continuously insured for the last year.
c. The trade-in must be titled in your name and have been for the last year.
d. If the trade-in is a car, it must have a combined fuel economy value of 18 miles per gallon or less.
e. Your vehicle must be less than 25 years old on the trade-in date.
f. You haven't previously participated in the CARS program.
5. The value of the voucher is as follows:
The voucher may be used to offset the purchase/lease price of the new vehicle by $3,500 if:
1. The new fuel efficient automobile is a passenger automobile and the combined fuel economy value of the new automobile is at least 4 miles per gallon higher than the combined fuel economy value of the trade-in vehicle.
2. The new vehicle is a category 1 truck and the combined fuel economy value of the truck is at least 2 miles per gallon higher than the combined fuel economy value of the trade-in vehicle.
3. The new vehicle is a category 2 truck that has a combined fuel economy value of at least 15 miles per gallon and the trade-in vehicle is a category 2 truck and the combined fuel economy value of the new vehicle is at least 1 mile per gallon higher than the combined fuel economy value of the trade-in vehicle or the trade-in vehicle is a category 3 truck of model year 2001 or earlier.
4. The new vehicle is a category 3 truck and the trade-in vehicle is a category 3 truck of model year of 2001 or earlier and is of similar size or larger than the new vehicle.
The voucher may be used to offset the purchase/lease price of the new vehicle by $4,500 if:
1. The new vehicle is a passenger automobile and the combined fuel economy value of such automobile is at least 10 miles per gallon higher than the combined fuel economy value of the trade-in vehicle.
2. The new vehicle is a category 1 truck and the combined fuel economy value of such truck is at least 5 miles per gallon higher than the combined fuel economy value of the trade-in vehicle.
3. The new vehicle is a category 2 truck that has a combined fuel economy value of at least 15 miles per gallon and the combined fuel economy value of such truck is at least 2 miles per gallon higher than the combined fuel economy value of the trade-in vehicle and the trade-in vehicle is a category 2 truck.
Miscellaneous Requirements
Only 1 voucher per single person and only 1 voucher for the joint registered owners of a trade-in vehicle.
Not more than 7.5 percent of the total funds made available for the program shall be used for vouchers for the purchase/lease of category 3 trucks.
You may combine this voucher with other federal, state, or local incentive.
A dealer participating in the program may not charge a person purchasing/leasing a new vehicle any additional fees associated with the use of a voucher under the Program.
Each trade-in vehicle surrendered to a dealer will be crushed or shredded.
The entity destroying the vehicle may sell parts of the vehicle before destroying, with the exception of the engine block and drive train.
Dealers must be registered with the program in order to participate.
Dealers will be reimbursed through electronic transfer of funds for the amount of the vouchers as soon as practicable but no longer than 10 days after the submission of information supporting the eligible transaction.
Dealers are required to use the voucher in addition to any other rebate or discount advertised by the dealer or offered by the manufacturer for the new fuel efficient automobile and prohibit the dealer from using the voucher to offset any such other rebate or discount.
Dealers must disclose to the person trading in a vehicle the best estimate of the scrappage value of such vehicle and to permit the dealer to retain $50 of any amounts paid to the dealer for scrappage of the automobile as payment for any administrative costs to the dealer associated with participation in the Program.
Any person who commits a violation of this program shall be liable to the United States Government for a civil penalty of not more than $15,000 for each violation.
The Secretary shall maintain a database of the vehicle identification numbers of all new fuel efficient vehicles purchased or leased and all eligible trade-in vehicles disposed of under the program.
Not later than 60 days after the termination date of this program, the Secretary shall submit a report to the Committee on Energy and Commerce of the House of Representatives and the Committee on Commerce, Science, and Transportation of the Senate describing the efficacy of the Program, including:
A description of program results.
The total number and amount of vouchers issued.
Aggregate information regarding the make, model, model year, and manufacturing location of vehicles traded in under the program
The location of sale or lease.
An estimate of the overall increase in fuel efficiency in terms of miles per gallon, total annual oil savings, and total annual greenhouse gas reductions, as a result of the program.
An estimate of the overall economic and employment
effects of the Program.
A voucher issued under this program shall not be regarded as income or gross income.
A Thought
Let's do a little math. A billion dollar program with about $4000 in vouchers for each given transaction or enough money to get 250,000 clunkers off the road. Let's say the new cars will use 25% less gas (25% less emissions) than the clunkers. Then for every 4 clunkers replaced by new cars, it is the same as removing one car from the road. So the program essentially removes the emissions of 1 of 4 cars or 62,500 cars. According to the Bureau of Transportation Statistics, there were 135 million passenger cars on the roads in the United States in 2007. So removing 65,500 cars is the same as removing .05% of the cars on the road. So the program fixed the car/truck emissions issue by .05% for a billion dollars of our money.
Will this stimulate the US car/truck business? There are about 10 million cars/trucks bought each year in the United States. In the good years it was 15 million. This program will add 250,000 new cars in 6 months. Normally there will be 5 million sold in 6 months. Therefore, this program could help by 5% for 6 months.
There is one very happy group of citizens/businesses and that is the people working for car crushing and shredding companies because they have to crush and shed about 250,000 cars/trucks in 6 months.
Bureau of Transportation Statistics: http://www.bts.gov/publications/national_transportation_statistics/html/table_01_11.html
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