The latest move to get the stalled auto industry in gear is a $1 billion voucher program that rewards consumers for replacing their old gas-guzzlers with new, more fuel-efficient cars.
Modeled after an initiative in Germany, the so-called "cash for clunkers" program—signed into law by President Obama on Wednesday—will issue vouchers of either $3,500 or $4,500 for the purchase or lease of a new "qualifying" vehicle.
The program, officially called the Car Allowance Rebate System (CARS), is expected to begin in July and will continue until Nov. 1, or until allocated funds run out. Backers hope it will boost sales of new vehicles by 250,000, saving auto sector jobs in the process.
The National Highway Traffic Safety Administration (NHTSA), charged with managing the plan, has 30 days from the June 24 enactment to work out final details, although the basic rules to qualify for a voucher are set.
Cash for clunker rules
• The trade-in vehicle must be no older than 25 years and drivable. When new, it must have had a combined EPA city/highway mileage rating of 18 miles per gallon or less. It must have been owned and insured by the seller for at least one year.
• The vehicle being purchased must be a new foreign or domestic car or truck that costs less than $45,000 and gets more than 22 mpg for a car, or 18 mpg for an SUV or a truck, in combined mileage. Used vehicles, even late-model and eco-friendly ones, do not qualify.
• To qualify for a $4,500 voucher, a new car's mileage must be 10 mpg better than that of the trade-in. Pickup trucks, SUVs and vans must get at least 5 mpg better mileage than the ones they’re replacing.
• To qualify for a $3,500 voucher, a new car must get at least 4 mpg improved mileage. New pickups, SUVs and vans must get at least 2 mpg better mileage.
Purchasers don’t receive cash rebates. Instead, dealers who are either members of the National Automobile Dealers Association or have been designated by a foreign or domestic auto manufacturer will reduce the purchase or lease amount by the qualifying voucher amount, says NHTSA spokesman Jose Ucles.
"All the consumer has to do is bring the title, registration and insurance papers of the trade-in to an official dealer," he says.
Calculating the benefits
The program will primarily benefit motorists with old, low-value vehicles, not those seeking to upgrade a recent model. You're free to haggle with dealers over what your old vehicle is worth, but since the law requires your trade-in "clunker" to be destroyed, a dealer will likely offer you little more than its scrap value plus the amount of the voucher. The dealer must disclose the scrap value to you.
So if your car's true trade-in value is more than the scrap value plus the voucher, you may be better off shopping outside the CARS program.
For more information on the voucher program, visit the official website run by the NHTSA. That site also provides a link to another federal website that provides EPA miles-per-gallon data for new and used cars. Use the ones noted in red type, indicating the qualifying "combined" fuel efficiency.
Beware of scammers
Already, scammers are poised to pounce on unsuspecting car buyers. So avoid any "cash for clunkers" websites that ask for your name, address or Social Security number to "register" for the voucher program or gain "preapproval." They could be a scammer's attempt to get your personal information for fraudulent purposes.
"There is no preregistration required, and everyone should be suspicious of any requests to do so," says Ucles.
Proponents say that in addition to helping the auto industry, the CARS program will rid American roads of vehicles that burn more gas, release more emissions and may be unsafe.
"According to EPA, the majority of auto emissions come from older vehicles that are not designed to meet current and proposed emissions standards and which often are not properly maintained," says William H. Bradshaw, chairman of Automotive Retailing Today, which represents major auto manufacturers and dealers. "Poorly maintained older vehicles can emit more emissions than several hundred new cars."
But environmental groups say the CARS program signed into law is a weaker version of original legislation proposed by Sen. Dianne Feinstein, D-Calif. "That was more stringent in ensuring that tax dollars would be used to replace clunkers with the most fuel-efficient new models, as opposed to a marginal improvement," says Sierra Club spokeswoman Ann Mesnikoff.
"We're not happy with the law signed by the president," she says. "Our hope now is that consumers who take advantage of this program—and the $1 billion in tax dollars available—will get the best fuel economy for their money, so overall, this program delivers benefits for taxpayers at large."
Sid Kirchheimer writes about consumer and health issues.
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