Cash For Clunkers Program Explained

The Car Allowance Rebate System (CARS), also called Cash for Clunkers program ended with cheers and jeers. The government subsidized auto trade in program aimed to remove gas hogs from the road and to bolster car sales and the economy. The program received mixed reaction. Environmentalists pooh-poohed it for weak fuel efficiency standards. Car dealers loved it, but await reimbursement. Conservative economists hated governmental interference, period. Early data suggests some car companies fared well. Only time will tell what impact, if any, the program had on the economy as a whole. In the meantime, here’s how Cash for Clunkers worked.

The U.S. government offered economic incentives to purchase new, fuel efficient cars upon trade in of old gas vehicles. Under the Cash for Clunkers plan, participating dealerships provided qualified car owners with a $3,500 to $4,500 rebate. The rebates applied toward the purchase or extended lease of a new car. Auto dealers scrapped the clunker cars, but not before disclosing the scrap value to the purchaser. The scrap value applied as an additional rebate, minus administrative fees.

Vehicles eligible for trade in under the Cash for Clunkers program were less than 25 years old and worth less than $4,500. They also got less than 18 miles per gallon based on Environmental Protection Agency (EPA) evaluations. To qualify, car owners had to prove the vehicle was roadworthy and insured for a year prior to trade. Trucks and cargo vans had different criteria. For example, work trucks did not have a mileage rating. They just had to be manufactured before 2002.

New cars purchased under the Cash for Clunkers program had to meet certain guidelines too. The list price of new passenger cars couldn’t be more than $45,000. They had to have a combined city/highway fuel mileage of 22 miles per gallon. Again, different rules governed large vehicles. Heavy duty trucks qualified for the $4,500 rebate when they got at least 17 miles per gallon. They qualified for $3,500 in rebates with of fuel economy of 16 miles per gallon or less.

The Cash for Clunkers program encountered bumps along the way. Right before the program launched, the EPA changed the mileage guidelines. According to USA Today, 177 clunkers got bumped from the eligibility list. The revisions left dealers and buyers confused. People, hoping to cash in on their trade in, drove jalopies to dealerships, only to discover the clunkers didn’t guzzle enough gas to qualify. Money was another issue. The Cash for Clunkers program started with $1 billion, but it exhausted those resources by the end of July. Uncertainty loomed around the processing of rebates. With no official word from the government, car dealers did not know if they should offer the rebates. Congress gave the program another $2 billion to continue.

The Cash for Clunkers program ended August 24, 2009. According to the CARS website, the plan took about 700,000 gas hogs off the road and received $2.87 billion in rebate applications. The most frequently traded clunkers included the Ford Explorer, the Ford F-150 and the Jeep Grand Cherokee. The top selling cars under the Cash for Clunkers program included the Toyota Corolla, the Honda Civic and the Toyota Camry.


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