If you're new here, you might want to learn what this site is about.
Please consider signing up to receive free updates via RSS or e-mail.

Adjust Text Size

Cash for Clunkers: Paying You to Junk Your Car

Written by Nickel - 41 Comments

In case you haven’t heard, I just wanted to point out that President Obama recently signed the so-called “Cash for Clunkers” program into law. Starting July 1st, would-be car buyers can get a $3500-$4500 credit for trading in their “clunker” and purchasing a more fuel efficient vehicle.

Officially known as the Car Allowance Rebate System (CARS) Act, the “Cash for Clunkers” program is intended to: (1) get gas guzzlers off the road, and (2) stimulate new car sales. We’ll just have to wait and see how well it works on both accounts.

Details of the Cash for Clunkers program

According to the official CARS website:

  • Your vehicle must be less than 25 years old on the trade-in date
  • Your vehicle must be in drivable condition at the time of trade-in
  • Only purchase or lease of new vehicles qualify
  • Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
  • Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
  • You don’t need a voucher, dealers will apply a credit at purchase
  • Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first
  • You can combine the CARS rebate with other State and Federal incentives, such as the hybrid vehicle credit
  • Not all dealers will be participating in the program, so check before buying
  • The vehicle that you are trading in is required to be destroyed

Note that, because your trade-in will be destroyed, the dealer is unlikely to offer you more than its scrap value. Still, for a crappy old car, the scrap value plus the $3500-$4500 credit might be worth taking advantage of.

Another point to keep in mind is that, while transactions taking place on or after July 1st will qualify, full details of the program won’t emerge until later in the month. Thus, you might want to wait a bit before jumping on this.

More info is available from the official site. If you’re curious about what sort of (official) mileage your old car gets, you can check it out at FuelEconomy.gov.

Published on June 30th, 2009 - 41 Comments
Filed under: Automotive

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

Related articles...

» Cash for Clunkers – Ending Soon
» Cash for Clunkers Program Suspended
» More on Reducing Your Junk Mail
» How to Get Off Junk Mail and Telemarketing Lists
» Navigating the Recession
» Reactive vs. Proactive Finances
» From the Archives (December 9th – December 15th)
» The Danger of No-Interest, Same-as-Cash Purchases

Was this article useful? Please sign up to receive our content via e-mail:

You will receive only the daily updates, and can unsubscribe at anytime.

41 Responses to “Cash for Clunkers: Paying You to Junk Your Car”

  1. 1
    Kira Says:

    I highly doubt this program will have its intended effect.

    You basically only qualify for the credit if you have a beat up, VERY old, big vehicle. I’m talking the Scooby Do bus from the 1970’s.

    Those with larger SUV’s (Ford Expeditions and Excursions) would still have atlest 3K of resale value left in their vehicles, making the credit a wash.

    Plus, it applies to new cars only. Stimulating GMs books (Government Motors), but not the elimination of gas guzzlers as a whole. Another expensive government program that doesn’t help the problem it was originaly designed to help.

  2. 2
    LOL Says:

    I despise government programs like this — what a waste of taxpayer money.

  3. 3
    Bible Money Matters Says:

    From what I’ve read less than 5% of the vehicles on the road still would be eligible for this program – and of those even less would even actually consider taking advantage of this. On top of that a good number of people who own vehicles that would be eligible either can’t afford a new car (low income) or don’t want to get a new car with payments – especially in this economy.

    I predict this program will be a huge failure!

  4. 4
    Kevin@OutOfYourRut Says:

    I’m with LOL on this, it’s what got the mortgage and housing industries in trouble. Too many subsidies greasing the wheels to make people buy things that really weren’t needed or that couldn’t easily be afforded post-subsidy.

    If you think about it, a person who drives a certified clunker probably can’t afford a new car even with the subsidy, otherwise they wouldn’t have the clunker in the first place. It’s hard to see this benefiting a large number of people.

    Nickel it’s good that you wrote this though because you’re providing enough information here to arm a car buyer, raising the red flags that he may not benefit. Otherwise this is sure to be a boon for the dealers who’ll get throngs of the uninformed (or informed enough to be dangerous) a large number whom will drive out with new cars and no subsidy.

  5. 5
    LOL Says:

    And another thing, maybe our gas mileage wouldn’t suck so bad if the gas wasn’t watered down with that ethanol garbage. I’ve also had to ‘upgrade’ to the premium blend of gasoline due to engine knock on one of my vehicles because of the lower octane rating of the watered down fuel.

    I think I’m going to turn a few screws on my ‘71 chevy’s carburetor and let it run extra rich in defiance — that alone should offset about 10 of the vehicles that get replaced by this program :)

  6. 6
    KC Says:

    I’m pretty certain if you could afford a new car, even with the gov’t assistance, you’d be in something else besides a 25 year old gas guzzler already. At first I thought this program was a good idea, but now I think its nuts because of the “only good towards a new car purchase” clause. The only people who will take advantage of this will be people who, for whatever reason, still have a 3rd or 4th car that is a gas hog. They’ll “trade in” the gas hog and get the $3500 towards the new car. They’ll take their current car and sell it, too, to put the money towards the new car. The cars that they’ll be getting off the road will be 3rd and 4th cars, not the everyday ones. People who drive a quarter-century old gas hog already can’t afford a new car at all – gov’t help or not.

  7. 7
    David Says:

    Several commenters assume that drivers of old(er) cars can’t afford new ones. Well, I can; it’s just that spending at least $15,000 on something that depreciates faster than any other asset (except maybe GM stock) seems like a foolish thing to do, not to mention the vastly-higher insurance premiums and, should you finance the new shiny, interest. My 1991 Volvo doesn’t qualify because its combined EPA mileage is 21, so no handout for me. Oh well.

    However there are some really desperate incentives out there on new cars and especially trucks, so it might be worthwhile to buy e.g. a Nissan Frontier truck and take not only the $3,000 Nissan handout along with the $3,500 gummint one (not $4,500 because of the mileage) and knock $6,500 off the already-negotiated (natch) price. If I was eligible for the handout, I would definitely consider this deal.

  8. 8
    Retireby35 Says:

    I wish they’ll raise it to 25 mpg… anything under that should be junked. Most vehicles in asia/europe are 30 mpg and we should try to match it in order to ween ourselves off of our need for oil.

  9. 9
    KC Says:

    Your 1991 Volvo doesn’t qualify because it is too new, too. You’d have to have an 84 or older car. I don’t know many people who have cars that old (that aren’t show cars or a “hobby” car). Driving an older car is smart financially (I have an 01 and before that I had an 89). But if you are in something from 1984 or earlier you are either too poor to buy a NEW car or very, very foolish considering the safety upgrades that have been made on cars in the past 2 decades.

    I would not be surprised if the commenter above who said only about 5% of cars qualify for this is correct. I rarely see 25 year old cars on the road and if I do they are fairly fuel efficient imports that have lasted this many years.

  10. 10
    FairyDust Says:

    Wait, the guidelines above state “less than 25 years old” not greater than. So cars made since 1984 would be okay as long as they meet all the other requirements. Our son’s ‘95 wagon would certainly qualify. The problem being that we’re not interested in buying a brand new car for him as a replacement :) Oh well.

  11. 11
    David Says:

    KC: no, the car must be less than 25 years old, not more.

    Safety and emissions upgrades are good things, at a price. All those upgrades add a considerable amount of weight and complexity and will not age well.

    Mine has an airbag (just one, and who knows if it’d still work), anti-lock brakes, and it’s built like a tank, so I feel pretty safe in it. The MPG isn’t bad compared to new cars and I’ve gotten 27-30mpg on long trips.

  12. 12
    Kevin@OutOfYourRut Says:

    FairyDust–Not sure that changes much. Cars built since 1984 were built with higher MPG requirements, so same net result, fewer cars qualify.

    If it benefits anyone, it’ll be the owners of more expensive gas-guzzling cars. Heck, our 1997 VAN has an average MPG north of 20–and that’s a van!

  13. 13
    geo Says:

    I’ve run a lot of numbers about this, and the program pretty much eliminates the new-car “drive it off the lot” sudden depreciation effect for cars under, say $25,000, especially if you are getting the full $4500 incentive and would otherwise have a low-value trade-in, say $1500 or less. There are ways to make this work for you even if you are normally a used-car tightwad. Nice to have an extra couple of trouble-free years for a change. Gift horse, mouth, etc.

  14. 14
    Kira Says:

    @ Kevin@OutofYourRut
    How would this benefit people with more expensive gas guzzlers if the program requires you to scrap your vehicle (and not get it’s trade in value?) Even my boyfriend’s 98 super charged Dodge Ram w/ 100,000+ miles on it would net more than $3,500. (Ironically, his other car is a Prius.) Anyone with a car valued at more than $3500 would not benefit from this subsidy.

    @ David – What the cars.gov site doesn’t tell you (with their full details to be explained later tag) is that the actual details of the bill passed only applies to American cars. Obviously, you won’t hear about this in the media anywhere than Fox News. They’re too busy making fun of the SC Governor and speculating about MJ’s surrogate child. (Which Fox does equally, as well.)

    The Obama administration is in it to make sure that GM books shows a profit for the first year of government control, so they can say “Hey, it worked” just in time for the 2010 elections. I live in a border state and a car-hauler of 2009 Border patrol branded Chevy Tahoes were brought to switch out Dodge Chargers less than a year old. This is Government Motors at work.

    This economy has taught Americans not to saddle themselves with out of control debt, but is excusing its government from these realities in the name of “recovery.”

  15. 15
    Kevin@OutOfYourRut Says:

    Kira–Because it’s largely the gas guzzlers that get under 18 MPG, and they’re usually more expensive than economy cars.

  16. 16
    geo Says:

    @Kira

    Not sure what your source is, but direct quote from the cars.gov site:

    “Q. I don’t drive an American car but I would like to trade in my old car for a newer, more fuel efficient one. Is this program only for American cars?

    A. No. You may trade in or buy a domestic or a foreign vehicle.”

  17. 17
    LOL Says:

    I suspect this “junk you good car” program is because of the E10 Gasohol (90% gas, 10% ethanol) used in the US now. Most electronic fuel injected (computer emission controlled cars) were not designed for this fuel blend and it is causing a 10-20% reduction in fuel mileage on these cars.

    For those of you bad at math — if it takes you 4 gallons of gasoline to go 100 miles, then with E10 fuel and a 15% reduction in fuel economy, you are now burning 4.7 gallons of fuel of which 4.23 gallons are gasoline !!

    Newer cars that have the ability to detect the amount of ethanol in the gasoline (flex fuel) should get an expected 3% reduction in fuel economy with E10 (as compared to E0).

    The government would rather pay people to get rid of older cars (due to this problem), than to admit that releasing E10 in the US was a horribly, horribly bad idea.

    http://www.dailygazette.com/ne.....3_Ethanol/

  18. 18
    Kevin@OutOfYourRut Says:

    Well, what ever reservations we all may have, Bloomberg is running the following story today:

    “Consumers Show ‘Huge Interest’ in Clunkers Program, LaHood Says”

    (http://www.bloomberg.com/apps/.....v5moQtx_rU)

    We can all thank Nickel for giving us advance info to ponder. As I commented yesterday, a lot of unsuspecting people will be driving off of car lots with new cars but no $3500-$4500 credit because they didn’t fully understand the program, but were lured into buying anyway. Hopefully that won’t include anyone who’s read Nickels article.

  19. 19
    The Getz Says:

    I’m not surprised there is “huge” interest. A dog will lap down anti-freeze as fast as it can because it is too stupid to know better.

    Thought I should edit this to include; I do not actually do the above, but it is common knowledge.

  20. 20
    Kevin@OutOfYourRut Says:

    Crap Getz, you’re even more cynical than I am. Gotta go tell my friends…

  21. 21
    jethro Says:

    I am going to make use of this program because it makes financial sense in my case.

    I drive a 1998 Ford Explorer with 165K miles. Based upon it’s condition I might be able to get $1,000 for it. I was planning on driving it until it falls apart. With this program it’s a no-brainer. Get a new car, effectively get $2,500 – $3,500 more than the value of the Explorer and get 10+ mpg than I’m getting now.

    I’m sure there are a lot of other people who are in the same situation who will take advantage of the plan.

    Jethro

  22. 22
    Red Oscar Says:

    @Jethro….While maybe for you, trading in your 1998 Explorer is a no-brainer, I came to a different conclusion for my 1990 Astro Van with 183,000 miles on it. The Astro is still in great condition, and I have figured that I can do a lot of repair and buy a lot of fuel for the $16-20K cost of a new vehicle plus increase in taxes and insurance.

    So for me, this “cash for clunkers” program is just a poor attempt to stimulate the auto industry and get a few suckers into dealer showrooms. And just think, whatever you purchase with your Explorer trade-in will be near worthless in 10 years. Enjoy the shine because it won’t last long!

    Red

  23. 23
    geo Says:

    @Red

    Think about this:

    On June 30, your 1990 Astro, per edmunds.com, was worth about $168 on trade-in, basically salvage value. As of July 1, your 1990 Astro is worth $3500 to $4500 PLUS salvage value. When this program ends in November, your van will be worth $168 again. Even selling it private party, edmunds says $400 or so.

    That’s a pretty big chunk of cash to leave on the table.

    You also gain 30 to 60% or more in mpg, which is cash in your pocket as well–I’ll wager it’s close to covering the insurance increase even at $2.65 a gallon.

    Obviously, it’s not necessarily the right deal for everyone, but I’d encourage everyone to do the math for themselves on this one while the opportunity is here.

  24. 24
    Red Oscar Says:

    @Geo

    My dilemma with the Astro is that before I heard about “cash for clunkers”, I had no real thoughts about trading it in. We have owned it since new, and we still find it useful for those special occasions when a van just comes in handy. Last year I put less than 3000 miles on it. I expect similar usage in the future.

    My real “clunker” is a 1992 Acura Integra. I would love to get the CARS trade-in value for this POS, but alas, it does not qualify because the fuel mileage is too high. So while it is tempting to trade the Astro under the program, I’ve pretty much decided to sit on the sidelines and wait to see if the rules may change after November. If I get lucky, the Acura may qualify, I can trade it on something like a Honda Fit, and still keep the Astro.

    As you say, everyone must evaluate their own set of circumstances. Our elected leaders will need to rework the rules more to my liking before I see any real incentive for me.

    Red

  25. 25
    doofusgumby Says:

    to all the nay-sayers above: suck it. I’m dumping my old 99 dodge van (primary vehicle – secondary is a motorcycle) with this program for a small car that gets excellent mileage. got the van new when I was doing a lot of deliveries, and beat the hell out of it for ten years. now I don’t need a huge vehicle, this program is perfect for me. van is so beat up now I’d get laughed off the lot if I tried to trade it in. probably worth around $1,000 if lucky for scrap – motor and tranny still strong, body is crap (rust, peeling paint, etc). and brake lines keep needing repair because chrysler in their infinite wisdom put the ALB module right under the leaky battery. So next week I’m getting some shiny new wheels.

  26. 26
    Jason Says:

    I certainly qualify for the $4500. I have a 1989 Ford Ranger V6(third vehicle, both others are paid for) that get an average of 17 mpg. I want to trade up to a 09 Ranger 4 cyl Sport and they currently have $4000 worth or incentives also. So a grand total of $8500 off a newer better mpg vehicle. PLUS the salvage value. I cannot beat a $10,000 new truck with warranty. Besides the 89 was a gimme from my inlaws 6 years ago. but its got 185,000 miles and is nearing the end.

  27. 27
    Kevin Says:

    I have a 1998 minivan that qualifies plus I own 3 other vehicles. This minivan qualifies at 18mpg and has 124,000 miles on it with slight surface rust on one fender. It runs very good and I was going to run it until it died since I have a son starting college this year ($20,000/yr). It so happens it is about due for new brakes, one power window does not work, and I need a hubcap. Trade in value $1,700 and 3rd party sale value $3,000 if I fix everything. I could have bought a new vehicle at any time over the last several years but decided I did not need to until I saw that I could get $4500 for this vehicle. Well I got a new vehicle on hold that I will pick up on Friday or Saturday. I have been to countless dealers and some have more then 70 people signed up while the dealer I went to had 5. If there are 19,000 dealers nation wide and all of them sell 13 cars under this program the 1 billion will not last long. Just remember not everyone is into new cars if they have one that works perfectly good. This incentive was too good to pass up. I will also get salvage value once that is determined.

  28. 28
    Paul in FL Says:

    I have to agree that the Amrican public is going to pay for this program, but at ONLY $1 billion it’s a bargain compared to other government gifts, e.g. $750 billion to Wall St mostly for bonuses and such. I’m retired now and mentioned this to my working adult children. They emntioned that if they were going to be responsible in taxes that they would rather see their old man who worked and paid taxes for 50 years get a legal one time government voucher than some illegal crack head down on Slum St. who’s going to get one every month for the rest of his life and maybe his kids too. Their view has merit.

  29. 29
    Alan in OK Says:

    There are a variety of ways this program can work for some people. I’m going to sideline my daily driver, a 1994 GMC Sierra for a new Ford Escape (I4 model). Trading in an old POS 1987 Ford Econoline van. My old truck will still be around, but it will rarely be driven now. The net effect is still a plus for the environment and my pocketbook, as I was going to buy a new vehicle anyways. I’m just buying a little sooner than expected. Sure am glad the insurance was kept on the van. It’s worth about $500 in the barely drivable condition it is in. Kinda sad to see the sex offender van go. Might write “free candy” on the side of it before I take it over to trade in tomorrow.

    Admittedly, the program needs revision. Many vehicles are EPA rated much higher than what they are actually capable of achieving after so many years of use. My 94 pickup is rated at 17 combined mpg, but it doesn’t even make that on the highway going 55mph anymore. A lot of other same model(V6) trucks experience the same issues as they get older. There are plenty of other issues here as well that cause vehicles that need to be scrapped to be excluded from this offer.

    P.S. Some of you are so solidly liberal or conservative in your beliefs that you’ve lost complete touch with reality. If you adhere so strongly to set of less than ideal ideologies you lose the ability to objectively observe anything. Think freely and intelligently. Neither Honkies nor Hippies have any right dictating policy.

  30. 30
    The_Duck Says:

    What people don’t understand is that this program will NOT help low-income families who can’t afford to have a car payment! Sure you get $3500 or $4500 trade in value, but you still have to pay for the rest of the vehicle! How can lower incomes do that?
    For example : A family of 4 with only 1 adult working and the other unemployed, 2 small children in school. After they pay their mortgage, utilities, grocery bill, etc … there isn’t any money left over for a car payment! This is just dumb. Plain dumb. The only people who can afford to do this Cash for Clunkers are people who have the money to buy a car in the first place!
    Let’s get real America ! ! !

  31. 31
    geo Says:

    You misunderstand the intention of this program. It is not meant to enable low-income families to have a new car. It is meant to 1) stimulate new car sales and thereby help the auto industry and 2) improve the overall fuel efficiency of the fleet. And certainly it might enable some who would not otherwise buy new to buy new, but putting low income families into new cars was never part of it. Not every government program needs to be targeted at low income families.

  32. 32
    LOL Says:

    Alan: Obviously the people who are benefiting from this program think it is great.

    But let’s think about all of the negatives of this program:

    * low end used car market is practically destroyed — with the government ‘junking’ 700+ thousand cars, there are 700+ thousand people who would’ve bought these car that no longer can

    * new car prices are basically $4,500 higher. Anybody not ‘junking’ a car would be a fool to step onto a new car lot today

    * the day you drive that new car off the lot, it will lose more than $4,500 in value due to depreciation

    * consumer debt levels increasing, instead of decreasing

    * dealers will be in one hell of a bind trying to attract new car sales once the program is over with, with the public holding out for ‘bailout #2′

    I’m sure there are other negatives that I’m missing.

  33. 33
    geo Says:

    I don’t mean to be a government apologist, but since I personally like this program and hope to benefit, I’ll stand in its defense again.

    * Used car market destroyed: Yes, though I’d argue not as much as you say. There are a lot of people out there for whom 4500 will not enable them to buy new anyway.

    * New car prices 4500 higher: Nope. That is expressly illegal. The worst would be that some car makers might not renew some incentives, but few were as good as 3500 or 4500. And some, like Chrysler, are adding more incentives on top. MSRP on a new car sticker (and invoice prices available in the internet easily) cannot be changed , unlike the fiction of used car sticker prices.

    * Depreciation. I’ve done the math on this using depreciation tools available on sites like Edmunds and for most moderate to low priced cars, the 3500 or 4500 pretty much cancels new-car depreciation.

    * Consumer debt levels increasing. Agreed. Not the greatest thing, but unfortunately our economy is consumption-driven, for better or worse.

    * Attracting sales after this is over. Yep, that will be a challenge. Though I have seen some stats that about half the buyers in the program were not intending to buy a new car this year until the program was announced. These are to some extent gained sales that might not otherwise be made.

    After the hundreds of billions we have spent on the banking industry and assorted bailouts and stimuli in the past year, the $3 billion for this is pocket change, even if it’s not perfect.
    *

  34. 34
    LOL Says:

    When you trade in your old car, the dealer is required to drain the engine oil, replace with sand, then run the engine until it seizes.

    http://www.youtube.com/watch?v=waj2KrKYTZo

    No parts of the car are allowed to be resold. The entire thing is crushed/shredded and whatever raw materials that can be recycled are.

    If anyone thinks this is good, then you would also think it is good for everyone to burn down their ‘inefficient’ houses, and pay to replace them with ‘new efficient’ ones. Ask a European how ‘rich’ they were after WWII when entire cities were destroyed.

    You can’t generate wealth by destroying it. You don’t help the environment by throwing away things.

  35. 35
    geo Says:

    They can sell anything not related to the drive train. I’d imagine that the body parts (doors, fenders, etc) are a significant part of the scrap value.

    I’d agree with you on the dubious idea of destroying in many cases still-usable cars, but this is not an environmental blog, it’s about money. And $4500 cash is a lot of money.

  36. 36
    LOL Says:

    Slaughtering pigs during the Great Depression to raise pork prices sounded like a good idea too — except to all the people who were starving. Lookup ‘Hog Reduction Program’.

    The CARS program is intended to reduce demand of foreign oil, but considering all factors: new car production, scrap costs, fuel savings of the new vehicle — the government (we the taxpayer) are in effect paying $80,000 per Barrel of reduced daily demand of oil.

    Now THAT is a lot of money.

    http://getenergysmartnow.com/2.....p-program/

  37. 37
    Sal Says:

    I’m in the same situation as Jethro who previously mentioned trading his 98 explorer. I just traded my 98 explorer that had 195k miles and very bad exterior appearance. I probably would’ve not gotten much more than a $1000 for the car, but with the CARS program I got $4,500 towards the purchase of a new nissan altima on top of $1500 rebate from nissan. So to me it ended up being a good deal. I got $6000 towards the purchase of a new car (which had been thinking about it anyway) and also got a car that spends less gas.

  38. 38
    LOL Says:

    Sal: looks like you probably went from 16 mpg to 22 mpg (combined mpg).

    Assuming you drive 13,000 miles per year, you are saving 221 gallons a year in fuel now (812 gpy to 591 gpy). From other sources I found online, it takes about 2,000 gallons worth of fuel to build that new car.

    Your break-even point is 9 years. Not so good.

    If you don’t drive that new car at least 117k miles, we have a net loss just in the fuel alone. This does not take into the costs of junking the explorer…

  39. 39
    Liro Says:

    My car has been registered to me and insured but I still owe on it. So this doesn’t help me one bit and I need a new car! The $4500.0 would pay it off and still have some left toward dn payment. But what is the use if it has to be paid off??

  40. 40
    LOL Says:

    #39) I have never had a ‘new’ car — and I don’t think there has ever been a time in my life that I said I needed a new car.

    My opinion, is that new cars are for the rich, cause they are the only people that can afford to have it depreciate 25% in one year.

    What is wrong with fixing what you have, or upgrading to a better ‘used’ car?

  41. 41
    chicago dude Says:

    I find it absurd, my wifes car or mine don’t qualify.
    She has a 98 Chrysler Sebring with 117k mines a chevy Beretta with 124k on the 2nd motor.

    How can these guys assume our cars still get the same mileage they did when they were show room new??

Leave a Reply

Disclaimer...
Because rates and offers from advertisers shown on this website change frequently, please visit referenced sites for current information. This website may be compensated by companies mentioned through advertising, affiliate programs or otherwise.

FiveCentNickel User Survey