Credit Card Professor

Cash for Clunkers

In June the Car Allowance Rebate System, also known as “Cash for Clunkers,” was passed primarily to help jump-start the struggling automotive industry, while also working towards environmental efforts.

The program offers cash vouchers to people who trade in their old cars for new fuel-efficient ones. In order to qualify, your vehicle must be a model from at least 1984, in working condition, registered and insured to you for the past year, and have a combined fuel efficiency standard of no more than 18 miles per a gallon. For those uncertain of their vehicles fuel efficiency, information is readily available on most models at fueleconomy.gov/feg/sbs.htm

The amount of the voucher one receives will vary according to the fuel efficiency standard of the new vehicle selected for purchase in comparison to the buyer’s former vehicle. For those trading in for a car that runs 4 miles or more per gallon, a voucher will be available for $3,500 towards your new vehicle purchase; but for those trading in for a car that run at least 10 miles more per gallon, that amount increases dramatically to $4,500. One of the catches of the whole thing is that your old car cannot be resold for a profit once they receive it. All cars obtained from the program are required to be scrapped, a point of fact that has become a catalyst for many environmentalists to disprove of the program.

Of course they aren’t the only ones to take issue with the program; some argue that despite the apparent generosity of the program, most consumers would still be better off purchasing a used vehicle which runs around $14,000 less for a similar vehicle that may be as few as a couple years older.

Another far more reaching issue that has become the topic of debate is as to whether or not any stimulus provided to the economy by the program will have a lasting positive effect on the economy at all. Some economists argue that the popularity brought on by such a program will not extend into any other areas of the economy, but could actually inhibit them since many people could overextend their budget hoping to cash in on the deal and be forced to cut back in other areas of spending in their life. Economists across the board acknowledge that the sudden influx of car sales caused by the program will directly affect the demand for new cars later on down the line in a negative way.

In any case, despite some controversy a little over a week into the program’s official kick off, it’s proven itself to be big success amongst consumers. Buyer demand has been so strong in fact that the government has already spent nearly $1 billion, the amount originally apportioned to the program which original estimates had expected to last until November.

The automotive industry itself seems pleased with the program, offering extra incentives for consumers to take advantage of it. Thus far they have seen a major spike in sales resulting in many dealerships depleting their stocks which may have the effect of increasing the overall cost of cars later down the line.

Congress is currently working to approve another $2 billion to extend the program urged by the White House.

For more information about the program or details on qualifications you can visit the programs official site at http://www.cars.gov