Get up to $4,500 cash for your clunkers

The recent  military spending bill passed by congress and awaiting at Obama desk for signature to be converted to piece of legislation would mean fuel inefficient cars would be off the roads and would pave in for more fuel efficient vehicles. The bill called as  the “ Consumer Assistance Recycle And Save Act 2009” or more popularly known as “cash for clunkers”. The $1 billion program will provide electronic voucher funded by the fed  up to $4500 for dealers to help them to offset the new car purchases or leases over next couple of months (five months).

This bill is a win-win situation for makers and car dealers of fuel efficient vehicles. The current  bill version  has only one minimum MPG requirements. For example,  iuv driver who trades in (with a  particpating dealer) for a 16MPG Hummer for a brand new SUV with 18MPG, he would be getting approx  $3,500.

According to business insider, if the car is more worth than the voucher for which it qualifies, it would be lot wiser for the driver to  avail the regular trade-in value. These vouchers do not come as addition to trade-in values brought in under cash for clunkers program have to be removed, so as to make trade-in value zero.

According to Jay Yarrow, head of business insider, “ We find it to be a strech to believe that anyone driving around in a car that is worth less than $4500 can suddenly – in the middle of Great Recession- afford a new car. There is a reason they are driving around a clunker, and no $4500 discount is really going to change that.”

Some of the problems raised above raises serious questions on how effective the program really will be for consumers to go for fuel efficient car and dump their polluting cars.

The program is supposed to start from July 1 and run through November1.  The US  transportation department has thirty days to set regulations for the program which would include how dealers would handle. Shred or dispose of the clunkered vehicles.

The basic framework how cash for clunkers program would work would be:

Definition of  Clunker:  only drivable vehicles manufactured in the last 25 years that have been insured continiously insured by the same owner for at least one year qualifying for trade-in.. This would eliminate all junkyard cars.  All the eligible vehicles will have fuel economy rating not more than 18MPG inclusive of city and highway ratings.

New cars  qualify if  they have sticker price of $45,000 or less. This means cars like Tesla roadsters (1,09,000) would not be eligible where as Toyota Prius whose sticker price is $22000 would qualify.  The trade-in would run until the $1 billion  program funds run out. Which would be good for 250,000 vouchers.

Passenger cars would qualify only if they have fuel economy rating of at least 22 MPG.  If the new car gest four more additional miles to the Gallon than the old car, they would be eligible for $3500 credit. And for ten additional miles per gallon, the car models would be eligible for $4,500 credit.

For SUV, Minivans and light trucks, they have to give atleast 18 MPG and if they give 2 MPG improvement, they are eligible for $3500 credit.

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