Cash For Clunkers - Not Seeing Much Benefit

Cash For Clunkers – Not Seeing Much Benefit

Sun, Jul 12, 2009

By now you may have heard about President Obama’s new “Cash for Clunkers” bill which was signed into law June 24th. It’s got quite a bit of attention lately in various sources of media.

I understand It’s a plan to accelerate the economic recovery, reduce inefficient cars on the road, and provide incentive to buy efficient cars. In case you don’t know about it, the plan pays consumers $3500 or $4500 vouchers for trading in their car (clunker) for a new car.

Does the clunker qualify?

Must have been manufactured less than 25 years before the date you trade it in
Must have a combined city/highway fuel economy of 18 miles per gallon or less
Must be drivable
Must have been owned and insured for the past year

How much is the voucher?

New car must be at least 4 miles per gallon (MPG) more efficient than the clunker. If the MPG difference is between 4 and 10, the government rebate is $3500
If the difference is more than 10 MPG, the rebate is $4,500

What the media is saying about “Cash for Clunkers”:

Some media, is saying the program is helpful while some say it will do little good to stimulate the economy.

WFAA TV in Dallas -

Finally, a federal bailout that can really help the average guy — at least the motorist who is driving an aging gas guzzler.

An article in Business week (July 13 & 20 issue), ”Cash For Clunkers Looks Like a Lemon”, has a different take.

Most cars on the road get more than 18 mpg so they won’t qualify.

If a customer can sell the old car for more than what the government will pay, there’s no reason to take advantage of the bill.

There are plenty of old cars that do qualify. But many are 10 years old or more, says Edmunds.com CEO Jeremby Anwyl. People driving cars that ancient often buy used, and even with a $4500 discount, they probably won’t want to take on new car payments during a time of economic hardship.

My thoughts on the “Cash for Clunkers” law:

While some may be excited about the possibility of this new law stimulating the economy through new car sales as well as putting money in their pocket, I’m not seeing much benefit.

1. If you read the Business Week article you’ll find their are limited funds available, at least until November 1 when the law is reviewed again, to really make a sizeable impact on new car sales.

2. I’m in the live debt free camp, so our family is working to eliminate car payments now and avoid them forever into the future. I’m sure there are many who will qualify and be enticed to claim their $3500 – $4500. My concern is that this law will motivate some to take on new car debt and in some cases take on more car than they can afford.

Should you cash in on your clunker?

Giving this some thought and considering what I’ve learned about avoiding debt, I would look to work through the below decisions before signing up.

1. If the car is still reliable and safe, I would continue to drive it and enjoy not having a car payment (assuming it’s paid off).

2. If the car isn’t reliable or safe, or I can’t get more for it than what the government will pay, the ideal situation (in my opinion) would be to take the voucher, add cash savings and purchase another car without financing.

However, it’s not uncommon to not have car cash savings. But if you want to remain car payment free, I would look to find a reliable clunker with my new found cash until I could save enough money to upgrade.

What do you think about the law? Is it good for the average guy, or not?

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