by Kathy Kristof

cash for clunkers

If you want to trade in your junker for a new vehicle under the federal government's "cash for clunkers" program, you'll have to act fast. The program expires Nov. 1 -- or when it runs out of money, whichever comes first -- and qualifying for the vouchers isn't as simple as you might think.

In fact, you'll need to know three things to decide whether it's a good deal for you:

  • Whether your old car qualifies;
  • Whether the new car you want will land you a voucher worth $3,500 or $4,500; and
  • Whether you could do better by selling your old car rather than trading it in for a voucher.

The newly passed federal program formally known as the Car Allowance Rebate System will give vouchers to drivers who turn in their gas guzzlers when buying or leasing a new car with better mileage.

The government figures the program will ease two problems -- it will boost the economy (and the troubled auto industry) by fueling new-car sales and help the environment by getting older, polluting cars off the road.

The program affects purchases from July 1 to Nov. 1, but more details about how "cash for clunkers" will work won't be announced until around July 24. Government officials suggest that car shoppers wait until then to buy.

On the bright side, you can use that time to weigh your options. There are three steps to determining whether the program is right for you -- and more if you decide to buy. Here's your action plan.

Does your clunker qualify for the voucher?

You qualify for the program only if the vehicle you plan on trading in is in drivable condition, is less than 25 years old, has adhered to state insurance laws and has been registered under your name for at least one year at the time of trade-in.

The vehicle also must have had a combined city/highway mileage of 18 miles per gallon or less when new, as determined by the federal government based on its assumption of how frequently cars are driven in city traffic and on the highway.

This mileage determination may have very little to do with reality. So even though you know that your 1990 Lincoln Continental barely gets 10 miles to the gallon, it can't qualify for the program because the government says it got a combined 19 miles to the gallon when new.

How can you determine your car's combined city/highway mileage? It's easy -- visit www.fueleconomy.gov. Click on the green "Cars" link and then on the blue and white tab called "Find and Compare Cars." From there, select the year, make and model of your car. If the combined mileage is 18 or lower, the car qualifies for the program.

Calculate the size of the potential rebate

If you meet the requirements, the government will give you a $3,500 or $4,500 voucher, depending on the new car you buy. You'll get a $3,500 rebate if the car you're buying gets 4 to 10 miles per gallon more than the one you trade in. You'll get $4,500 if the new car's mileage beats the old car's by more than 10 mpg.

Basically, the new car must get at least 22 combined miles per gallon to get a voucher. (Trucks have a lower standard and may qualify for the program even when there isn't a big mileage savings.)

Look up the car you want at www.fueleconomy.gov and do the math.

For example, if you're trading in a 1994 Chevrolet Suburban, which has a combined city/highway mileage of 13, for an Equinox, which gets 20 miles to the gallon, you'd get $3,500. (You couldn't use the program to trade in the Suburban for a Tahoe, Trailblazer or Avalanche because the fuel efficiency on those new cars isn't high enough to qualify.)

If you've grown out of sport-utility vehicles and want a smaller car, buying the 30-mpg Aveo will land you a $4,500 voucher.

It's worth mentioning that the size of the rebate is pivotal because you won't get much more than that for the car. Vehicles turned in under the program will be junked, so there's no reason the dealer where you trade it in would pay for more than the scrap value, which can be as little as a few hundred dollars.

Is your car worth more than voucher?

Does the voucher give you the best deal for your trade-in? One way to figure that out is to go to the Kelley Blue Book website at www.kbb.com and look up estimates of what your car would be worth if you traded it in outside of the "cash for clunkers" program or sold it to a private party.

The 1994 Suburban could be sold for $3,880 to $4,955, depending on its condition, according to the site. And you might get more if it were loaded with options.

But if you plan on buying a new SUV that gets only 22 miles to the gallon, your voucher is worth considerably less than the used-car value -- unless the old Chevy is in such bad condition that you'd get bottom-rung pricing.

On the other hand, if you're buying the Aveo, the voucher is probably a good bet since it provides almost as much as you could get in a private-party sale (more than you'd get from a dealer) and you wouldn't have to pay for advertising or go through the trouble of showing the car.

Theoretically, you could turn in your 2002 Acura MDX, with a combined city/highway mileage of 17, under the voucher program. But you'd be crazy to because the car would sell for about $10,000 -- which is $5,500 more than you would get through the voucher program.

The perfect "cash for clunkers" trade-in: a 1994 Oldsmobile Cutlass Supreme, which Kelley Blue Book estimates is worth $700 to $2,130, depending on the car's condition. The voucher would give you at least $1,400 more.

 

Do research on your new car and its price

If all this still leaves you wanting to participate in "cash for clunkers," your final step would be to do your homework on the new car you want to buy.

Make sure to consider the options you want and do plenty of comparison shopping to make sure you get the best deal.

Kathy M. Kristof, author of "Taming the Tuition Tiger" and "Investing 101," welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. E-mail her at kathykristof24@gmail.com.

 

© Tribune Media Services, Inc.

 

Cash for Clunkers Program Has Its Roadblocks