10 Things to Know About 'Cash for Clunkers'

10 Things to Know About 'Cash for Clunkers'

Today, car dealers were given the green light to begin accepting gas-guzzler trade-ins for a credit of up to $4,500 toward fuel-efficient cars -- as part of President Obama's Car Allowance Rebate System (CARS), informally known as the cash-for-clunkers program. The auto industry, hard-hit by sales that have fallen to a 30-year low at an annual pace of no more than 9.9 million units in any month between Jan. 2009 and June, are now hopeful the government's incentive will help clear dealers' lots.But like most programs or bills recently passed by Congress (hint: the credit-card bill of rights), cash-for-clunkers comes with a roadmap filled with red flags and fine print for consumers to navigate. On the upside, some dealerships are now matching the federal incentive, offering up as much as $9,000 toward a green car; on the downside, there are a number of speed traps (for example, used car trade-ins and luxury car trade-ups are off limits) to adhere to. Below, 10 things you should know before you bring your gas-guzzler to the dealer and, ultimately, to the junkyard:



1. Your car must guzzle a whole lot of gas. In fact, it must get 18 miles per gallon or less in combined highway/city rating. This is based on the "Estimated New EPA MPG" ratings that can be found at www.fueleconomy.com. After you trade it in, your car will be shredded or crushed at a government-approved salvage facility within six months.

2. If your car is too old or in poor condition, it’ll be rejected. Cars must be less than 25 years old (1984 models or newer) on the trade-in date. Your car must also be "road-ready," proven that is it drivable by both the owner and dealer that's accepting the trade-in. Furthermore, it needs to be insured and licensed for at least a year.

3. The greener you go, the more green you’ll see. When trading in a passenger car, you'll receive a $3,500 rebate if you improve efficiency by 3 MPG vs. your old vehicle. If you improve efficiency by at least 10 MPG, you'll receive $4,500. If trading in a sport utility vehicle, pickup truck or minivan, you'll receive a $3,500 credit for a 2 MPG efficiency improvement. If you beat the efficiency of your SUV/pickup/minivan by 5 MPG, you'll receive a $4,500 rebate.

4. You must buy a new vehicle. Unfortunately, used car trade-ins aren't accepted. You must purchase or lease a new domestic or foreign car. Caveats: Its Manufacturer's Suggested Retail Price can't exceed $45,000, and if leased, financing must be for a period not less than five years.

5. Not all dealerships participate. It's fully up to an auto dealer to decide whether it participates in the cash-for-clunkers program. Fortunately, nearly 16,000 auto dealers have already signed up. But be sure to call first to avoid disappointment. Dealers that aren't yet participating can still sign up; registration takes about a day or so to certify.

6. Don't tell your dealer about your clunker until after you negotiate. Find a fuel-efficient car, negotiate the price and then inform your dealer about your gas-guzzler. Otherwise, the dealer might be less willing to give you its best offer, knowing you're already getting a deal. Also be sure your gas-guzzler doesn't have a value over $4,500, in which case it'd be better not to participate in CARS.

7. Finding the right dealer could double your savings. Some auto makers, like Chrysler, are matching the federal rebate, for total savings of up to $9,000. (The most fuel-efficient vehicle in Chrysler's 2009 lineup is the Dodge Caliber, which gets 27 miles per gallon.)

8. Your rebate might be taxable. The use of the term "rebate" isn't intended to have any effect on how CARS transactions are treated under state or federal tax laws. Therefore, the discount could be considered income. Although the CARS Act provides that the credit isn't income to the purchaser, it doesn't address any other possible tax issues, which means the IRS could disagree. For clarification, check with your accountant.

9. There are special rules for work trucks. Work trucks aren't rated for fuel economy by the EPA, so they must meet different eligibility qualifications. Work trucks are eligible for CARS if they were manufactured no later than model year 2001 and not earlier than 25 years before the date of trade-in. They may only be traded in for a truck that is of similar size or smaller than the work vehicle. The maximum credit for trading in a work truck is $3,500.

10. Time (and credit) is limited. The CARS Act specifies that only one credit may be issued to a single person, and no more than one credit may be issued to joint registered owners of a single vehicle. In addition, the clock is ticking. The program lasts until Nov. 1, or until the $1 billion in funds that Congress has allotted to the program runs out. For more information, visit the official CARS web site.