Tuesday, July 14, 2009

Cash for Clunkers

Ju posted a comment in response to my recent column about mistaking "cats" for "cars" in the government car buy-out program. I've thought about the comments over night and did some poking around.

From the official web site for the program:

Important Things to Know

  • Your vehicle must be less than 25 years old on the trade-in date
  • 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.
  • The program requires the disposal of your eligible trade-in vehicle and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.

Check this site frequently for the most recent updates from the government.

My Jeep was build in 1997 and gets, maybe, 16 miles per gallon on the highway. In theory, it would appear I qualify for a new car based on this. Some additional information from the official site:

What is NHTSA doing to implement the program?

As required under the law, NHTSA will publish rules for the program in 30 days. We are currently working closely with manufacturers, dealers, and disposal facilities to get a workable, effective program up and running.

Do I need to get a voucher or sign up for this program?

No. You do not need a voucher and you are not required to sign up or enroll in this program. Participating new car dealers will apply a credit, reducing the price you pay at the time of your purchase or lease, provided the vehicle you buy or lease and the vehicle you trade in meet the program requirements. The dealer will then obtain reimbursement from the government.

How do I know if a dealer is participating in the program?

The law requires dealers to be registered to participate in the program. We will be moving as quickly as possible to register interested dealers as soon as the registration process begins in the near future. As dealers are registered, we will list them on this website. We will continue to update this list during the life of the program. Meanwhile, you may wish to contact dealers in your area to ask whether they plan to participate in the program. The CARS Act requires that dealers be licensed by their respective state for the sale of new automobiles in order for them to participate in the program.

Is there a cap on the price of the vehicle I can buy or lease under the program?

Yes. The manufacturer's suggested retail price cannot exceed $45,000.

Does the program apply if I want to buy a used car?

No. The program does not apply to the purchase of used vehicles.

What is the amount of the credit?

The amount of the credit is $3,500 or $4,500, and generally depends on the type of vehicle you purchase and the difference in fuel economy between the purchased vehicle and the trade-in vehicle. Different requirements apply for work trucks.

In addition to the credit, will I get the full value of my trade-in vehicle?

No. The law requires your trade-in vehicle to be destroyed. Therefore, the value you negotiate with the dealer for your trade-in vehicle is not likely to exceed its scrap value. The law requires the dealer to disclose to you an estimate of the scrap value of your trade-in vehicle.

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?

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

I just traded in my old car for a new vehicle last month. Will I get some money back?

No. The program does not apply retroactively.

Is the credit subject to being taxed as income to the consumers or dealers that participate in the program?

The CARS Act expressly provides that the credit is not income for the consumer. However, the credit will be considered as income for the dealer.

Can I use the credit in combination with manufacturer rebates or discounts?

The CARS Act requires the dealer to use the credit under the CARS program in addition to any rebates or discounts advertised by the dealer or offered by the new vehicle's manufacturer. The dealer may not use the credit to offset these rebates and discounts.

Can I combine this credit with other government incentives?

Yes. You can combine this with other State and Federal incentives, such as the hybrid vehicle credit. For information on this credit, go to http://www.fueleconomy.gov/Feg/tax_hybrid.shtml

Can dealers charge me a fee for buying or leasing a vehicle under the CARS program?

While dealers can charge their normal types of fees, the CARS Act specifically prohibits dealers from charging a fee for purchasing or leasing a vehicle under the program.

What will I need to bring to the dealer in order to participate in the program?

You should bring documentation establishing the identity of the person who currently owns the vehicle, preferably the title of the vehicle, and documentary proof that the vehicle “has been continuously insured consistent with the applicable State law and registered to the same owner for a period of not less than 1 year immediately prior to the trade-in.” The final rule will specify what types of documentation would be acceptable.

What happens to the vehicle I trade in?

The CARS Act requires that the trade-in vehicle be crushed or shredded so that it will not be resold for use in the United States or elsewhere as an automobile. The entity crushing or shredding the vehicles in this manner will be allowed to sell some parts of the vehicle prior to crushing or shredding it, but these parts cannot include the engine or the drive train.

These are the things I see as most important to know about the program. It's slated to start July 24, 2009 and run through November.

Lousy legislation? Well, I see it as "feel-good" or, less charitably, "knee-jerk", reaction that is so typical of our elected officials. First, full disclosure. I voted for President Obama. I felt and still feel that huge change is needed and his administration is going to start that change. Therefore, I am more willing to be patient with the fits and starts of trying to right the ship, so to speak, than someone who did not vote for Obama.

Yet, I don't see this program as doing what it is intended to do. Is the US auto industry in dire straights? Yes and its floundering send shock waves all across various industries. I have one friend who lost his job a year ago in a company that supplied parts to Ford. He has not been able to find work since. Buying cars is one way to put people back to work as those cars will need to be build and repaired.

BUT, here is my big problem with this program. I could, and the operative word is "could", get $4,500 for my car. According to the Kelley Blue Book, my Jeep is worth to a dealer a bit under $3,000. Worst case sceanario, combining the lowest allowed incentive with the lowest suggested dealer trade-in gets me around $6,000 to apply toward a new car. The problem is, a new Jeep is going to cost, assuming a sticking to the manufacturer's suggested retail price, around $16,000. That means, making assumptions here that may not be valid, I have to finance $10,000. I don't have the wherewithall to assume more debt. And that, from my limited POV, is the killer on this program.

The cars that need to be removed from the drive stream are the cars driven by people like me who are scratching and scraping to hang onto what they have. My house payment went up. My dental insurance went up. My utilities have gone up. I have taken a 10% pay cut because I'm not in the field like the guys are. I run the office. No, that doesn't translate into a higher salary. I may be making more money than I have ever made in my life, but all my expenses are up. Just where do I find an additional chunk to make car payments? And then my insurance will go up because I'm driving a newer car. I have to sink more money into the Jeep for repairs. The argument can be made that if you're driving a new car, you don't have the repair costs. But, from where I stand, the average I pay over the course of a year is less than the cost of car payments and increased insurance. How can I participate in a program like this?

I wish I could say that our elected officials are "well-meaning". I just don't think they get it. They assume that people who need a car to drive to and from work have the wherewithall to replace that car just because there is a nice shiny new program trotted out to do that. Some people will and a few cars will be removed from the highway. But it's going to flop tremendously. $4,500 is not enough of an incentive for me to trade in my car, given that mere survival is what I do now. What about those who are worse off than I and drive 1990-era cars? Should we be subsidizing a commodity whose value decreases so quickly?

I don't have answer, never would purport to have answers. This one topic has a myriad of policy ramifications far beyond the simple objection I have. And what if I can't trade my Jeep for another Jeep? I adore the drive in my Jeep. It suits me. I can't imagine driving another car.

This post isn't really designed to start a debate on the merits of the program, pro or con. I'm just tossing out there the one problem I see with it.

Beverage: English Teatime


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