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A guide to ‘Cash for Clunkers’

July 8th, 2009

By Clint Williams
Green Right Now

Desperate automobile dealers are slashing sticker prices, passing on rebates and offering zero percent financing to move metal, making this a good time to buy a new car. And the good times are about to get better thanks to the federal “Cash for Clunkers” program kicking off later this month.

The Car Allowance Rebate System (CARS) signed into law last month is designed to help car makers and the environment by providing vouchers of $3,500 to $4,500 toward the purchase of a new vehicle in exchange for a gas-guzzling clunker. The program essentially inflates the trade-in value of older cars and trucks, providing drivers an incentive to go ahead and buy a new, more fuel-efficient rig right now.

Add the CARS voucher to existing tax credits and the generosity of Uncle Sam goes a long ways to paying for a new hybrid or clean-burning diesel vehicle.

Uncle Sam’s definition of a clunker is pretty specific, however. To qualify for a voucher your car must:

  • have been manufactured in 1984 or later;
  • have a combined city/highway fuel economy of 18 miles per gallon or less;
  • be drivable;
  • be owned and insured by you for at least a year.

The new vehicle can’t cost more than $45,000. If the car gets at least 22 mpg (combined city and highway mpg) the voucher is worth $3,500. If the new car gets 10 mpg better than the clunker you’re trading in the voucher is worth $4,500.

The bar is lower for new SUVs, vans and light-duty pickup trucks. The program offers $3,500 if the new vehicle gets at least 18 mpg combined and that is 2 mpg better than the old SUV, van or pickup. If the new vehicle gets 5 mpg better than the old, the voucher is $4,500.

The government voucher is paid directly to the dealer – your old car will be crushed.

The voucher is your down payment, so the program is useful to you only if the trade-in value of your vehicle is less than that of the voucher. Automobile shopping websites such as Edmonds and Kelly Blue Book have compiled lists of clunkers that are likely good candidates for the program.

The math is pretty simple when it comes to gauging the program’s benefits for car buyers. It’s less so when trying to estimate the environmental benefits.

“The fuel economy requirements are so lax in the final version that it’s hard to say with confidence that there will be net environmental benefits,” said Therese Langer, Transportation Program Director for the American Council for an Energy-Efficient Economy.

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