Cash for Clunkers Used for New Tax Free CARs Subsidy – Qualification and Eligibility Criteria

Cash for Clunkers program Update: Dealers must submit any pending Clunker deals, including any necessary paperwork, by 8 p.m on Monday to get refunded for the CARS subsidy. To date, the program has recorded more than 457,000 dealer transactions worth $1.9 billion in rebates. “With a date certain, NADA is strongly recommending that all dealers now focus their attention and efforts on submitting reimbursement claims prior to the looming deadline,” said John McEleney, chairman of the National Automobile Dealers Association.

For consumers, this weekend is the last chance to take advantage of this wildly successful program. If you meet the eligibility criteria below, then this is a great deal for new car buyers, along with all the other government subsidies and tax breaks.

I have received a number of reader question’s on the CARS program and based on the type of inquiries here are some key things to know (in addition to mileage criteria in the previous updates below). You can also see a summary of what the big automakers are offering in relation to this program.

– The program only applies to used cars traded in for new vehicles bought July 1 to Nov. 1. Get your best new car quote from Yahoo! Autos before going to the dealership.

  • The used “clunker” must be drivable & has to have been continuously insured and registered to you for one year before the trade-in. This provision was put in the law so no one would buy a junkyard car to try to get the cash credit. Further, trade-in cars must get no more than 18 miles per gallon, have been built in 1984 or after. A consumer could then get a $3,500 voucher toward a car that got at least 22 mpg. The value of the voucher will increase to $4,500 if the new car is 10 mpg higher than the trade-in.
  • You cannot claim the subsidy and cash from a trade in. I.e. no “double-dipping”. The dealer is required to destroy your old. Clearly, if the value of your trade-in is worth more than the qualifying cash credit, it may not be worth participating in the program.
  • The manufacturer’s suggested retail price (MRSP) cannot exceed $45,000 for the new vehicle (foreign or domestic) you are trading in the clunker for. You will not receive money directly from the government. The dealer will apply the qualifying credit toward the purchase price and then apply for reimbursement. Participating dealers (and most are) have to offer the credit in addition to any rebates or discounts offered. Consumers can also use the subsidy toward leasing a new vehicle provided the lease period is at least five years.
  • The cash credit will not be treated as income so no tax consequences from participating in the program. It is, however, considered income for the dealer. Additionally, using this credit doesn’t negate using other state and federal tax incentives geared toward fuel-efficient vehicles. For example, you can use it and still get the federal tax credit for purchasing a hybrid or new car deduction in the Obama stimulus package.

    ** Is your future new car eligible for this program – Get your best new car quote from Yahoo! Autos **

CARS program extension : There has been news that the Cash for Clunkers program has run out of money. However a $2 Billion extension for this program has been submitted in Congress. See this article for more on this.

Here are what some of the Big 4 Automakers are offering in relation to this government subsidy:-

– Toyota is allowing buyers to choose among 17 available car, truck, SUV and hybrid models, five available Lexus models, or select from Scion’s full lineup of vehicles. In addition to possible savings from the car allowance rebate system, Toyota dealer and Toyota Financial Services offer purchase and lease programs that can be combined with the “cash for clunkers” rebate. Low-end models can be bought with less than $500 cash down!

– Chrysler is offering $4,500 in bonus cash toward the purchase of a new vehicle as it seeks to match a government incentive for people to trade in their old gas guzzlers. That means some consumers could, in theory, get up to $9,000 off a new Chrysler vehicle if they trade in and buy the right combination of vehicles. According to Edmunds, 16 Chrysler vehicles are fuel efficient enough to qualify a shopper for a tax rebate under cash for clunkers, so long as the trade-in vehicle qualifies as well.

– Ford, Lincoln and Mercury are promoting this program for around 20 cars by focusing on the recycling aspect of the program and the bonus savings from buying a new Ford or Lincoln Mercury vehicle. Using their Qualification Calculator buyers can select their current vehicle and then learn which Ford, Lincoln or Mercury vehicle is eligible for the CARs program. The calculator is an easy to use tool (even though it is focused on Ford cars as expected) if you’re seriously thinking about trading in your clunker for the clunkers credit.

– GM seems to have made the least fuss about this offer compared to other automakers, but that could be because they have bigger issues (like getting out of bankruptcy) on their plate. The provide a specific page for this program and a basic eligibility calculator. However I could not see any additional bonus or specific offers.


[Update June 20th 2009] The “cash for clunkers” program has now received senate approval and should be in effect by July 2009 once the President signs the bill and the regulatory details are finalized. The car trade-in plan is designed to last one year and will end up costing tax payers about $4 billion. The $3,500 or $4,500 vouchers will be issued electronically to dealers almost immediately upon the point of sale, based on the following criteria:

Trade-in cars must get no more than 18 miles per gallon, have been built in 1984 or after, and have been owned and insured by the purchaser for at least a year. A consumer could then get a $3,500 voucher toward a car that got at least 22 mpg. The value of the voucher will increase to $4,500 if the new car is 10 mpg higher than the trade-in. Consumers will also be able to use the vouchers toward the five-year lease of a vehicle.

A $3,500 voucher can go to a small light-duty truck that gets at least 18 mpg and is two mpg higher than the trade-in. A 4,500 voucher will be issued for a truck with a five mpg improvement.

A $3,500 voucher will be issued for large light-duty trucks that get at least 15 mpg and are one mpg higher than the trade-in. A $4,500 voucher will be issued for a truck with a two mpg improvement.

So when you go to trade in your car next month, bargain hard using these 10 new car buying tips and make sure your dealer provides you with the cash for clunkers voucher (either in cash or a reduction in the car price). You may also be eligible for the new car tax deduction also available in President Obama’s economic stimulus package.

[Update June 2009] The House of Representatives has approved the “cash for clunkers” bill ( 298-119) that aims to boost new auto sales by allowing consumers to turn in their gas-guzzling cars and trucks for vouchers worth up to $4,500 toward more fuel-efficient vehicles

Under the House bill, car owners could get a voucher worth $3,500 if they traded in a vehicle getting 18 miles per gallon or less for one getting at least 22 miles per gallon. The value of the voucher would grow to $4,500 if the mileage of the new car is 10 mpg higher than the old vehicle. The miles per gallon figures are listed on the window sticker. For example, owners of sport-utility vehicles, pickups or minivans that get 18 mpg or less could receive a voucher for $3,500 if their new truck or SUV is at least 2 mpg higher than their old vehicle. The voucher would increase to $4,500 if the mileage of the new truck or SUV is at least 5 mpg higher than the older vehicle.

Rep. Betty Sutton, D-Ohio, the bill’s chief sponsor, said the bill showed that “the multiple goals of helping consumers purchase more fuel efficient vehicles, improving our environment and boosting auto sales can be achieved.” Sen. Debbie Stabenow, D-Mich., has backed a similar version in the Senate, which has the support of automakers and their unions.

Other key provisions in the bill

– Consumers could also receive vouchers for leased vehicles. Large trucks (pickup trucks and vans weighing between 6,000 and 8,500 pounds) with mileage of at least 15 mpg would be eligible for vouchers of $3,500 to $4,500.

  • Consumers can receive electronic government vouchers through participating dealers for the purchase or lease of qualifying vehicles. Older trade-in vehicles must be in drivable condition, be manufactured in model year 1984 or later and be continuously insured to the same owner for at least one year immediately prior to trade-in.

The Senate version of the bill has some slightly different provisions/criteria such as the trade-in passenger car must get 17 mpg or less and the new passenger car must get at least 24 mpg to be eligible for vouchers. The vouchers would also be distributed at varying levels with passenger car owners receiving a voucher worth $2,500 if they traded in a passenger car getting at least 7 mpg more than the old car. The voucher would grow to $3,500 if they traded in a passenger car getting at least 10 mpg more than the old car. And it would grow to $4,500 if they traded in a passenger car getting at least 13 mpg more than the old car.

As part of the US Government’s ongoing efforts to try and reinvigorate the local car industry, lawmakers are proposing to let domestic and foreign made cars qualify for a proposed “cash-for-clunkers” program in a bid to secure passage of the measure through congress. Initially it was proposed that only US owned automobiles and manufacturers would receive the subsidy, but following charges of protectionism from overseas and the World Trade Organization (WTO), the proposal has been modified to distribute subsidies to new-car buyers based on the manufacturers’ U.S. market share. So, General Motors customers, which comprised 22 percent of the market share in 2008, would receive 22 percent of the federal funding set aside for subsidies. Toyota’s customers, at a 17 percent U.S. share, would get 17 percent of funds. This approach should overcome objections that the original plan only subsidizes/protects North American owned car makers.

The “Cash-for-Clunkers” program is based on similar programs in Germany which were successful in reviving flagging domestic auto sales. Basically the program would be funded by the US government (i.e. taxpayers) which would pay or subsidize owners of old, fuel-inefficient automobiles via a coupon or voucher for between $3,000
and $5,000 if they junk their old car and buy a new low-emissions model. Apart from boosting local auto-sales it aims to get millions of fuel-inefficient vehicles off the road to help lower our reliance upon foreign oil, and reduce emissions and pollution. According to the Associated Press, by its fourth year the program would save between 40,000 and 80,000 barrels of fuel a day. The estimated cost of the program is up to $2 billion and has been endorsed by the Obama Administration.

Congress will review the revised proposal soon after it returns from a recess next week. Given the sad state of the US auto industry, where sales are at a 27-year low, this program is one of the few options left. The US auto industry estimates that such a program could generate additional new car sales of 500,000 to 1.5 million cars a year. No wonder General Motors and Chrysler, which are surviving on taxpayer aid and face bankruptcy deadlines imposed by the Obama administration, are strong supporters of this program. A spokesman for House Speaker Nancy Pelosi said, “There’s broad bipartisan support in Congress and we’re working with the administration. We hope it’s crafted in such a way that all manufacturers can participate, and that at the end of the day a consumer could be able to use the incentive to purchase the vehicle that he or she wants.”

Given the success of scrappage programs around the world (albeit on a much smaller scale) in increasing auto sales and the environmentally friendly nature of this program, it is likely that Congress will follow suit and pass some kind of subsidy to promote new car sales this year. So if you are thinking of trading in your old car, maybe you will get an additional subsidy on top of the new car tax deduction.

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