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Is It Worth Guzzling That 'Clunker' Cash?

Customer at an auto dealership.
AP
Customer at an auto dealership.

The Senate is readying an extension of the so-called Cash for Clunkers program, potentially providing more consumers with another chance to cash in on the popular government program.

The program's nickname conjures up images of rusty old cars bumping along the road, but it is a misnomer. It would be better if it were called "Cash for Guzzlers."

In order to qualify, a vehicle must:

  • Have been manufactured less than 25 years before the trade in date,
  • Have a “new” combined EPA city/highway fuel economy of 18 miles per gallon or less,
  • Be in drivable condition, and
  • Be continuously insured and registered to the same owner for the full year preceding the trade in. (For more detail, click here.)

The idea seems admirable: encouraging consumers to stimulate the economy by buying cars, while getting fuel-burning cars off the road.

The Department of Transportation Secretary Ray LaHood said the program, officially titled the Car Allowance Rebate System, has generated a 61 percent increase in vehicle fuel economy, with the average fuel economy of new vehicles purchased under the program at 25.4 miles per gallon. That is a solid improvement over the 15.8 mpg average of the cars being traded in as of Aug. 1. With the improved mileage, it is estimated that the typical buyer will save between $700 and $1,000 a year in fuel costs.

Many of the vehicles being traded in are trucks, about 83 percent, and most buyers are switching to cars, with Ford's Focus being the most popular vehicle being purchased, according to LaHood.

But does it make sense to cash in on the program? A key thing to consider is whether someone can make more money trading in the vehicle rather than scrapping it. Consumer Reports compiled a list of the some of the best gas guzzlers to junk.

They suggest that if you have a car on its last legs with serious engine or transmission trouble, it may be easier to get rid of the car this way than through the traditional trade-in method or by putting it up for sale yourself. (To find out whether your car qualifies, check out the Envrionmental Protection Agency's fuel economy ratings.)

As for whether this program is really stimulating demand, consider this. It’s nice to have someone hand you $4,500 toward a new car, but you still have to be able to afford the balance of the cost of new car. And new cars come with a lot of other expenses. Often registration for a new car is higher than that of an old one as is insurance payments.

With all the reports about money for the program running out, it could be a mistake to rush through the process of buying a car. Instead, shoppers need to consider each step thoroughly. This includes selecting a car, negotiating a price, the potential value of the trade-in, a consideration of whether it would be more prudent to purchase a used vehicle, and the cost of financing.

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