Will Cash for Clunkers Help You Buy a New Car?


If you’re an owner of an older car, truck or SUV and you’re looking to upgrade, you could get up to $4,500 off your purchase, thanks to a proposed government-funded "cash for clunkers" program.

In addition to generous incentives and financing plans being tossed around by GM (Stock Quote: GM), Ford (Stock Quote: F), Hyundai and other automakers to lift car sales, the proposed bill, also known as the Fleet Modernization Bill, aims to put more fuel efficient vehicles on the road by giving incentives to consumers, but there's some question as to who the bill really benefits.

How It Would Work

The House Energy and Commerce Committee agreed on the program last month. (You can see a PDF fact sheet here.) The Senate is expected to vote on the incentive program in June.  If the proposed bill passes, you could get a $4,500 voucher for the purchase or lease of a brand new passenger car that gets at least 10 more miles per gallon than the vehicle you trade in. (That's combined fuel economy, folks, or the average of city and highway MPGs.) If you plan to buy a new car that gets at least four more miles per gallon than your old one, you can get a voucher for $3,500.

A Budgetary Bump in the Road for Some
Those who need a new car but can’t afford a brand new one—for example, drivers who’ve had the same car for eight years—may not stand to benefit from the program, says John Wolkonowicz, senior auto analyst at market research firm IHS Global Insight.

“Taking on a car loan is a big deal," he adds.

Who Really Benefits
The consumer benefitting most from cash for clunkers might have two or three cars, says Mike Jackson, director of North American vehicle forecasts for automotive market research firm CSM Worldwide. He or she would have a vehicle that qualifies for a trade-in, plus the means to buy a new car or be approved for a lease, which is becoming increasingly difficult,  Jackson says.

“You’re going to have some well-to-do families that have three or four or five cars who will take one and trade it in to get a new car for one of the kids,” Wolkonowicz says.  Jackson adds that many of thos families are "delaying or postponing their decision until the program is approved."

All in all, the program likely won't help those most in need of a new car.

One Possible Change Could Save Folks More

Under another option proposed by Sens. Dianne Feinstein of California, Susan Collins of Maine and Charles Schumer of New York, the voucher would apply to both new and used cars, as long as it has better fuel efficiency. Under this alternative, you would get a $1,000 voucher if you trade in a 17 MPG or less vehicle for one that gets at least 24 miles per gallon. In order to qualify, the used car purchased would have to be a 2004 model or later.  Light or heavy duty truck trade-ins would have to get 17 miles per gallon or less and be traded in for a three miles per gallon improvement.

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