9 Things You Need To Know About “Cash For Clunkers”

By Jim Baxter, NMA President

A recent public information report on Congress’s “Cash for Clunkers” legislation has been released to spell out the general details.  Keep in mind that this is not set in concrete and the final outcome is not assured.

Here are the general details as they are currently known:

1) Who is for it?

Car companies, their suppliers, auto workers, and car dealers.

2) Who is against it?

Environmental groups that want to force higher fuel saving standards are the most mentioned opponents.  However, auto enthusiasts, car collectors, parts re-manufacturers, and perhaps elements of the salvage industry are looking for ways to put sand in the gears when it comes to destroying the traded in vehicles.  No one really knows what the effect will be on the used car and truck market.

3) What is it going to cost?

The plan is to take $4 billion out of the $787 economic stimulus package.

4) Who gets what?

The government will send $4500 or $3500, depending on the level of fuel mileage improvement, directly to the dealer that sells the car. Eligible trade-in vehicles must have fuel economy ratings of 18 MPG or lower and have been registered for at least a year for road use.  The $3500 payment is made for vehicles that get at least 4 MPG better mileage than the trade-in vehicle. The $4500 payments kick in for models that get 10 MPG, or better, above the trade-in vehicle’s mileage.

5) What happens to the trade-ins?

All major driveline components are destroyed. Body panels can be recycled.

6) Are trucks treated the same as passenger cars?

No.  Most SUVs, vans, and pick-ups have the same 18 MPG threshold, but the new unit need only offer 2 MPG improvement in mileage for the $3500 payment. The $4500 payment kicks in with a 5 MPG improvement in mileage.  Heavy duty trucks have yet different standards.

7) What if the new car is bought before this law goes into effect?

The effective date is set back to March 30th 2009 and the program is limited to one year.

8) Will this law apply to newer used vehicles?

There are proposals to extend the benefits to newer used vehicles but they are still being debated, as are most elements of this bill.

9) Will this bill really benefit the auto industry and the economy?

Probably not.  It may slightly “front load” sales in 2009, but these are sales that would have occurred anyway, just a few months later.  With the incentives being in place for a full year, purchasers would not be compelled to buy until early in 2010.  By that time the market could well be recovering on its own. Further, many people in the market to buy a new car, would do so without the government incentive. Other folks who can’t afford a new car are still not going to be able to afford a new car, even with government aid.  The incentives may push purchasers looking at newer used cars to consider a new car, if incentives are not applied to newer used vehicles.

Like all attempts on the part of Government to pick winners and losers, instead of sticking to being an impartial referee, there will be unintended consequences we cannot yet even begin to imagine.

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