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June 25th, 2009

Update4 “Cash for Clunkers” Is Law

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UPDATE4: The “Cash for Clunkers” bill, now formally known as the “Car Allowance Rebate System” (CARS), was signed into law by President Obama yesterday.

For a quick “5 important things to know” about the initiative,  the program’s official website, CARS.gov, offers these points:

  • Your vehicle must be less than 25 years old on the trade-in date
  • Only purchase or lease of new vehicles qualify
  • Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
  • Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
  • You don’t need a voucher, dealers will apply a credit at purchase

If you have anymore questions about the program, be sure to visit CARS.gov. The website has a list of FAQs, will determine your vehicle’s fuel economy, and more.

The latest projections have estimated that the program will generate 250,000 new-car sales.

(UPDATE3 — 6/19/09): The “Cash for Clunkers” bill passed in the Senate last evening and will make its way to the president’s desk for his signature into law. The bill will take effect one month after the president signs the legislation and expire on November 1, according to AutoNews.com:

The $1 billion initiative that passed the House earlier this week seeks to boost auto sales and increase the fuel economy of U.S. cars and light trucks. It would offer $3,500 to $4,500 cash vouchers for about 3½ months to consumers who trade in their cars for new, more fuel-efficient vehicles.

Congressional Budget Office data suggest the bill would result in the sale of 150,000 new cars, said Nichole Francis Reynolds, chief of staff to Rep. Betty Sutton, D-Ohio. Sutton sponsored the original bill.

Similar programs in Germany, China and France have resulted in substantial sales increases since the end of 2008.

Skeptics remain fervent in their stance that bill won’t have much success. The low mile-per-gallon requirement to receive the full voucher is expected to largely restrict the amount of participating vehicles. Last week the Detroit Free Press reported that “even 15 years ago, only five models of midsize sedans managed just 18 m.p.g.”

(UPDATE2 — 6/10/09): The “Cash for Clunkers” bill, which has puttered along Capitol Hill for months now, passed the House yesterday. The bill’s next stop is the Senate, where lawmakers will debate ways to improve the program.

As it stands now, the program will give car owners up to $4,500 when they trade in their vehicle which gets 18 miles per gallon or less. If passed, the low mpg requirement is likely to mute some of the program’s potential success since most trade ins will be trucks and, according to the Detroit Free Press, “even 15 years ago, only five models of midsize sedans managed just 18 m.p.g.”

Michigan Senator Debbie Stabenow (D-Lansing) expects a Senate vote as early as this week. We’ll keep you posted.

(UPDATE1 — 4/29/09): The Detroit News reported today that lawmakers were “inching toward an agreement” on the “Cash for Clunkers” legislation yesterday. The debate has centered around two separate proposals in the bill:

People familiar with the talks said House negotiators were talking toward a compromise between two competing proposals: one advanced by auto-state lawmakers hoping to boost domestic carmakers, and another by environment-minded members that would put more emphasis on replacing older cars with more fuel-efficient models. There are similar competing versions pending in the Senate.

A outside consulting firm estimated that the program, which has proved successful in Europe and South America, could generate up to $25 billion in economic activity.

Original story (”Still No “Cash for Clunkers,” Still No Consumer Demand”) posted on February 24, 2009:

Back in January we wrote about a Congressional proposal that would provide consumers with a cash voucher of up to $4,500 in order to purchase more fuel-efficient vehicles if they traded in their older, gas-guzzling vehicles. Commonly known as the “Cash for Clunkers” bill, it remains one of, if not the only, proposal to date designed to stimulate auto sales.

Last month we wrote that the Federal legislation had a good shot for passage since the bill would receive a new set of eyes under a new Congress. Yet, Cash for Clunkers was excluded from the new administration’s Economic Recovery and Reinvestment Act.

While the measure is highly praised by environmentalists and public transit advocates, yet scorned by classic car aficionados and collectors, it remains an approach designed to stimulate demand at the consumer level — an approach continually lacking from Washington’s ongoing strategies in dealing with failing automakers.

Just last week we asked our readers: why hasn’t the government taken the same approach with rescuing automakers as they have taken with housing? Why hasn’t Washington pumped money in at the ground level, stimulating consumer demand for the failing product?:

The government’s approach with these automakers has been to pump repeated billions into the top, in hopes that it will trickle down to consumers. Since the automakers’ fundamental problem is that Americans aren’t purchasing their vehicles, why hasn’t the government taken the same approach they’ve taken with the housing industry and provide consumer incentives to purchase their vehicles?

Cash for Clunkers may not be a perfect program (it has experienced more success in some states than in others), but it could be the first step in getting Americans to buy cars again.

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8 Responses to “Update4 “Cash for Clunkers” Is Law”

  1. Imee Says: March 6th, 2009 at 5:22 am

    I think it’s a shame that the program was shelved. I really think it would’ve done so much good for the environment, and eventually produce cashflow that would help the economy and create jobs.

  2. Tim Manni Says: March 6th, 2009 at 12:17 pm

    Imee,

    For some reason the government continues to balk at relief programs that would stimulate interest in American cars. They need to incentivize car purchases; otherwise American car companies may never improve.

    Thanks for your comment,
    Tim

  3. Lucia Says: April 29th, 2009 at 5:39 pm

    My mechanic tells me the new cars have so many computers that replacing them is his main source of business. He advised me to keep my 10 year old pickup because it runs better than the new model. Besides, it’s completely paid for, which is probably what most owners of older vehicles are thinking as well. And when you add up the cost of payments for a new or newer vehicle and insurance, compared with the cost of fuel and insurance for the older vehicle, the older vehicle is cheaper to own.

  4. Tim Manni Says: April 30th, 2009 at 11:53 am

    Lucia,

    Great points — many I never even thought of! I just had my “traction control computer” fail on my car. If it weren’t for my extended warranty, I would have been out $1,000! But don’t forget, you may get up to five grand for that trade in…Yet as you said, will that really offset the new cost of ownership?

    Thanks for commenting, you’ve made some great points. Hope to hear from you again soon,
    Tim

  5. Alessandro Machi Says: June 26th, 2009 at 5:41 pm

    lol, so if the car is older than 25 years it is not a clunker?

    How idiotic is that?

    http://www.daily-protest.com

  6. Tim Manni Says: June 29th, 2009 at 11:04 am

    Alessandro,

    I think the mpg matters more that the model’s year. Yet, if the car is 25 years old, I’m sure you have a good shot at it getting about 18 miles per gallon.

  7. EILEEN FLEXER Says: July 29th, 2009 at 9:30 pm

    What poorly written legislation. Why do they exclude cars preceeding 1984? We own a 1974 Chevrolet Suburban getting 8-9 mpg. Certainly it would benefit the environment to get this car off the road. The govt. program to rebate $3500 for only a 5mpg difference is a waste of money to the taxpayers.

  8. Tim Manni Says: August 3rd, 2009 at 12:05 pm

    Eileen,

    Wow, I can’t believe they wouldn’t want a vehicle that gets such poor gas mileage off the road. Check out Cars.gov and review the list of eligible vehicles — maybe they added it??? If not, it doesn’t make much sense.

    Thanks for commenting,
    Tim

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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