Smart Shopping Strategies: ‘Cash for Clunkers’

There are plenty of good reasons to dump that old car, but before you do you’ll want to take time to study the rules and strategies of the cash-for-clunkers incentive program.

Staff reports

The program is designed to boost the new car market, which helps retain dealer jobs as well as jobs in manufacturing – cars, parts, peripherals, etc. – by keeping production lines active. Two side benefits are that all those new, more efficient cars will improve the average gas mileage in the overall American fleet and have a positive impact on air quality and global climate change.

Remember, however, that Uncle Sam’s rebate program is not by itself a good reason to cash in your older car. It’s possible, even likely, that you can get a better deal by selling your clunker on your own and using that cash to buy replacement, rather than using the rebate.

The Clunker Rules

Under the federal program, formally known as the Car
Allowance Rebate System (CARS), if you trade a gas guzzler with a
combined city/highway mileage rating of 18 or less for a vehicle whose
fuel economy is at least four m.p.g. higher, you’ll get a government
rebate to use toward the purchase. (You won’t actually get a rebate
check in the mail. Instead, the dealer will take your trade, apply the
credit toward your purchase price, have your clunker destroyed, and
then get reimbursed by the government.) If the new car gets at least 10
m.p.g. more than your old one, the rebate is $4,500; if the improvement
is at least four but less than 10 m.p.g., you can claim $3,500.
To find your old model’s mileage rating, go to www.Fueleconomy.gov site
set up by the Environmental Protection Agency and the Department of
Energy. Click “Find and compare cars,” then choose a year, make, and
model. Under “New EPA MPG” is a number in red; that’s the combined
mileage.

You can then follow the same procedure to check on the car
you’re thinking of buying. If you don’t know the precise age of your
car or truck, it should appear on the safety standard certification
label on the frame or edge of the driver’s door in most vehicles
(“2-95” means February 1995, for example).

The Five Catches
Here are five limiting factors you might not have heard about:
•    Your clunker must be road-ready with at least a year’s insurance history in your name.
•    It must be less than 25 years old.
•    The vehicle you buy must be new, not used.
•    If you want to lease the new car, the contract must be for at least five years.
•    The manufacturer’s suggested retail price (MSRP) of the vehicle you buy can’t exceed $45,000.

In addition to the age and efficiency of your old car, supply
and demand will impact the deal you can get. Money is available: the
program’s original $1 billion was used up in less than two weeks, and
last week Congress added $2 billion more, which is expected to last at
least through Labor Day. Some dealers still have a big supply of cars,
so a seller’s market (where lots of demand gives the dealer leverage)
could become a buyer’s market. Other dealers are reporting that the
program’s first impact was so strong that they have run low on eligible
vehicles to sell, meaning they still hold lots of cards. But the bottom
line is this: dealers NEED the sales more than you NEED a new car.

Learn to Drive a Hard Bargain!
Here’s how to make the best use of the clunkers program:

1. Go for the rebate only if it’s more than your clunker is worth.
The rebate may be too stingy to be worth your while. Many older cars
are worth more than the $3,500 and $4,500 rebate amounts. A 1999 Ford
Econoline minivan (14 m.p.g.), for example, could be worth more than
$4,500 in a private sale. Kelley Blue Book or Edmunds.com can help you
determine your clunker’s value. The dealer is supposed to include your
old car’s scrap value in the deal, but that’s not likely to amount to
more than a few hundred dollars (minus the $50 paid to the dealer for
administrative costs).

The best models to trade in for government rebates are “older
cars that are not worth much and get poor gas mileage,” says Eric
Evarts, associate autos editor at Consumer Reports. Examples from
Consumer Reports’ list of the best gas guzzlers to junk: any pre-1998
Mercury Grand Marquis, older truck-based SUVs with V-6 or V-8 engines,
four-wheel-drive Chevrolet Silverado trucks from 1997 or earlier, and
pre-1998 Dodge Durangos.

2.  Don’t tell the dealer about your clunker right away
In a buyer’s market you have a lot of leverage in the auto showroom,
even without the government rebates. Use it to your advantage: tell the
dealer that you’re interested only in discussing the new car purchase,
and then work out the best price you can. Only then should you mention
you have a clunker and that you want to have its rebate amount
subtracted from the new-car price you’ve just negotiated. If you let
the dealer know about your clunker immediately, he may jack up your new
car’s purchase price, since he’ll know you’re getting the rebate.

3. Stack rebates on top of manufacturer discounts
You might be able to lower the new-car price even further by combining
an automaker’s discounts with the government’s rebate. For a small,
fuel-efficient car, the result could be a mouthwateringly low price.
For instance, a 29-m.p.g. Hyundai Accent with an MSRP of $12,670 would
run just $6,670 after the $4,500 rebate and $1,500 in Hyundai discounts.

But remember the long-term consequences. “This is a tremendous
opportunity for some people, but anyone driving a clunker should really
evaluate whether he or she can afford a new car payment that will last
a lot longer than the clunker cash,” said Edmunds.com Senior Consumer
Advice Editor Philip Reed.