Zoomi Life

The Congress passed the “Cash for Clunkers” program (officially called “Car Allowance Rebate System” or CARS).  Now, they’ve launched a website for the program and are scrambling to put together the rules for how the system will work.

Meanwhile, of course, they want you to urge your local car dealerships to sign up to participate. I’m not sure about you, but I wouldn’t personally want to sign up for anything not yet knowing what the rules really are.  Sure, the bill spells out how the overall program will work, but it doesn’t give specifics on how dealers are to participate (costs, reimbursements, etc.).

All that aside, cars.gov does have some more specific rules than given in the bill itself, which clarifies a lot of issues and also manages to raise some new questions.

As the process for trading in older vehicles to get a new one is ironed out, the site receives updates.  So expect things to change on cars.gov pretty regularly.  As of this writing, the rules are pretty simple.

Cars must be 25 years old or older to be traded in. Uhh…  My pickup is considered old and it’s only a 1990, so it doesn’t qualify as a trade-in.  Everyone I can think of who has a car that’s older than a quarter of a century doesn’t have any plans to turn in their “potential classic” or their “runs great, why would I get rid of it?” car.

Since the fund is only $1 billion in size, only 250,000 trade-ins will be vouchered through it. Okely dokely, so how is this going to “dramatically boost car sales” again?  That was a big selling point for this program initially and throughout it’s Congressional debate.  That’s a drop in the bucket compared to the total 7.71 million new passenger cars expected to be sold in the USA this year.

Analysts agree with my assessment, with a recent article in Automotive News by four analysts estimating that a maximum of 200,000 new vehicles will be sold as a direct result of Cash for Clunkers.  Read this short writeup on that article for the details, as a subscription to AN is required to read it in full.

The plan is not expected to be functioning and in place during the current “hot season” for car sales. June and July are the industry’s “hot season” for car sales while November/December is the “sell off” season when car companies attempt to dump their old inventory in preparation for bringing in new models.  The Cash for Clunkers plan won’t likely be functional until late August or September and the cutoff for getting a voucher is November 1, so both “hot seasons” will be missed.

How I see this shaping up is pretty simple. There are at least 250,000 “clunkers” for sale out there in America somewhere that will qualify for this program.  I’d be willing to bet that most of those who are selling them cannot afford a brand new car.  Therefore, those who can afford a brand new car and would have been buying one anyway will be smart to capitalize by spending $300-$1,000 on a clunker they can trade in for $3,500+ at the dealership on their new car.

To counteract this, the plan has a weak “must be registered and insured for a full year before trade-in” policy.  If the car is running well enough to drive into the dealership, there’s a good chance it will meet this criteria.  Were I to be one of the aforementioned smart types, I’d make proof of this contingent on my purchase from the clunker’s current owner.

The good news in all this is definitely worth mentioning. Most of the charities who rely heavily on donated clunkers for their incomes will not be deeply affected by Cash for Clunkers.  Since the number of trade-ins is so limited and since the old age is a requirement, charities will likely continue to see about the same number of donations as they were getting before.

The other good news is that the government has once again proven that they can’t do anything right.

What’s your assessment of the CARS program?  Think it’ll work?  Leave a comment and let us know.