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Can You Cash In Your Clunker For a $4,500 Government Voucher?

The new “Cash For Clunkers” legislation should become law within just a matter of days. The idea is to provide people with a financial incentive to trade in their old, gas guzzling model, and purchase a new more fuel efficient vehicle. As with any of these government programs, the devil is always in the details. Today, I want to address what this program is and how you can find out if you qualify for a voucher. Although the “Cash For Clunkers” program is not officially law yet, chances are it will be very soon. Even if this new law passes in short order, auto industry experts expect the program to take a minimum of several weeks to be enacted. This is due to all of the bureaucratic red tape that will be involved in its administration.  Similar “Cash For Clunkers” programs have been in place in Europe for some time. Although the roots of this program are in environmental protection, the concept has picked up steam since it would also be beneficial to the currently troubled auto industry.  It is estimated that there are between 30 and 50 million so-called clunkers on the road (defined as “older” vehicles getting less than 18 MPG. 

1.  What Vehicles Will Be Eligible For The Voucher?

Edmunds has created a list of the vehicles that will likely be eligible for the voucher. The general rule of thumb is that your vehicle must get 18 miles per gallon or less to qualify for the program (combined city and highway driving).

2.  How Can I find Out The Amount My Voucher Will Be Worth?

The amount of the voucher will be between $3,500 and $4,500 based on the fuel efficiency of your current vehicle, compared to the fuel efficiency of the new vehicle you're purchasing. I know this sounds a little complicated, but after all we are dealing with the government here.  If you improve your mileage by at least 4 MPG you will qualify for the $3,500 voucher, if you improve your MPG by 10 miles or more the amount of the voucher goes up to $4.500.  The Edmunds list (link above) will be a good guideline to follow at this point. 

3.  How Long Must I Have Owned The Vehicle To Qualify For The Voucher?

To prevent people from running out and buying a clunker for $1,500 and exchanging it for a $4,500 voucher, the government will require that your name be on the title of the vehicle for a minimum period of time. At this point, all indications are that the required ownership period will be at least one year, and the vehicle must be in drivable condition.

4.  Can I Use The Voucher To Buy A Used Car?

Since one of the primary purposes of this law is to stimulate sales for the troubled auto manufacturers, you will be required to purchase a new car to use the voucher. At least that's what we understand the current status of the legislation to be.

5.  What If My Used Car Is Worth More Than $4,500? Will I Get The Difference?

If you trade your car in for a voucher, you will not receive any additional compensation for the "value" of the vehicle. So, if your used vehicle is worth more than $4,500 this program would not be advantageous to you.

6.  If I Own Two Older Cars That Qualify, Can I Combine The Vouchers?

This is a very popular question, but we understand the program to allow only one voucher per separate vehicle purchase.

7.  What Happens To The Clunkers That Are Traded In?

Cars traded in for a voucher are headed to the scrap heap.  Dealers must agree to have the vehicles crushed that they receive a voucher payment for.


8.  How Will The Voucher Affect The Price Negotiation On A New Car?

Of course, negotiating to buy a new car is already a very challenging exercise. The process gets more complicated when there is a trade-in involved. Probably the best way to approach this purchase is to negotiate strictly on the value of the new car and consider the voucher as cash (for the purposes of establishing the total price you will pay). I can already imagine that many people will end up overpaying for a new car, since having the voucher may not be viewed by them as "real money." The only way to make sure you're getting the best deal, is to follow all of the standard negotiating tactics. First, use the Internet to determine what a reasonable retail price is for the vehicle you are going to purchase. Secondly, comparison shop by asking a minimum of 2 to 3 dealers to give you price quotes.  In no case, would I allow a dealer to overcharge me on a vehicle simply because I am using a voucher. This voucher will be just as good as cash to the dealer, and you should expect to pay no more if you are using it as part of the overall transaction.

9.  Will This Voucher Program Get Hummers and Other Newer Gas Guzzlers Off The Road?

No, since the vouchers are only good for a maximum of $4,500 people will obviously be holding on to their cars that are worth more than that.

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