Cash for Clunkers: What Might It Really Mean to Car Buyers?

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Yesterday, the House approved a plan that’ll give electronic vouchers up to $4,500 to car owners who trade in their old gas guzzlers for more fuel-efficient models. Similar “cash for clunkers” programs are already in place in Europe, and various bills have been discussed in the U.S. for months. Originally, the plan was offered as a one-two punch to simultaneously help the environment and improve dismal car sales. Now, it’s thought of mainly for the latter purpose. Naturally, car manufacturers are excited, environmentalists less so. Consumers don’t know what to think. So here’s a closer look at what the plan will and won’t do for potential car buyers.
You won’t be able to unload the rotting car carcass in your lawn.
All trade-ins must in drivable condition, they have to have been insured for the previous 12 months, and they can’t be more than 25 years old. Your ancient “Sanford & Son” pickup does not qualify.

You won’t necessarily save that much at the pump.
You’ll receive at least $3,500 for trading in a minivan, SUV, or pickup that gets 18 mpg or less for one that gets merely 2 mpg higher. That’s not going to make that much of an impact on how often you have to fill up the tank—or all that powerful an impact on greenhouse gas emissions, for that matter.

It’s not clear how the trade-in will affect the purchase price of your new car.
Even after you’ve got the e-voucher ready, you’ll still have to negotiate with your car salesman for your new ride. And there’s no saying how this will change the negotiation process. Buying a new car gets more complicated when you’re trading an old one in, and it seems like the “cash for clunkers” deal will complicate things further.

Many gas guzzlers are worth more than you’ll get in the trade-in.
According to the plan, trade-ins will be crushed or recycled. So if the blue book value of your car or truck is more than $4,500, forget it. The plan looks most promising for folks with cars of a late ’80s vintage with a couple hundred thousand miles behind them. And these sort of car owners tend to be loyalists, attached to their trusty, reliable vehicles, for good reason.

The plan’s probably not going to get Hummers off the road.
Because who would unload their luxury SUV only for $4,500 in return?

Ultimately, taxpayers are footing the bill.
Because the trade-ins are bound for the scrap heap, the government is basically eating the value of the trade-in. Am I crazy, or is this simply yet another handout to the car companies? Certain customers will be able to take advantage and get a new, more fuel-efficient car at a discount—and guess who is subsidizing that discount? The same car buyers, along with their taxpaying neighbors. If the plan does becomes law, the real beneficiaries will be the car companies. To some extent, Mother Nature benefits too (and by extension, all of us). But mainly it’s the car companies.

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