Uncle Sam is dealing. A "cash for clunkers" proposal making its way through Congress would offer the owner of a gas-guzzling car or truck as much as $4,500 toward a newer, more-fuel-efficient vehicle.
Under the bill that passed the House on May 5 and a similar version under review in the Senate, qualifying clunkers must get 18 miles per gallon or less.
If the new car got 4 to 9 miles per gallon more than the old one, going by Environmental Protection Agency ratings, the payment would be $3,500. If the new car got at least 10 mpg more, the vehicle owner would get $4,500. For light trucks, the mileage gain would have to be at least 2 mpg for the $3,500 payment and 5 mpg for the $4,500.
MSN Money slide show
Here's a look at some gas guzzlers that would be eligible for the federal voucher program and might be worth trading in. Does your car qualify as a clunker?
In return for trade-in vouchers, dealers would agree to scrap the old vehicles, taking the gas hogs and their pollution off the roads. In theory, the environment would get a break, and struggling automakers and car dealers would get a hand.
Though the U.S. program was conceived as part of a strategy to limit climate change, the imploding economy has reshaped the debate. Original proposals were more stringent, offering the vouchers only for new cars that got at least 28 mpg and new SUVs that saw 23 mpg or more. There aren't many models, car or SUV, that do.
Even the bill's name has changed. A version introduced March 17 in the House was called the Consumer Assistance to Recycle and Save Act of 2009, or CARS. The bill that passed the House on May 5, however, closely resembles another version of the legislation aptly named the New Automobile Voucher Act.
"This will not benefit the environment, but it will help sell a new pickup truck," said Ann Mesnikoff, the director of green transportation with the Sierra Club, the nation's largest environmental protection group. "They are trying to make it possible to sell anything under this bill."
Even if it passes as now written, the bill might not affect sales much. In a recent Kelley Blue Book survey, nearly 40% of car buyers said that the bill wouldn't spur them to purchase a new vehicle. Only 13% of survey respondents said that they would be "highly motivated" to buy a new car, if the bill passed.
If and when the bill passes, it may look different. Environmental activists are still pushing lawmakers to make the fuel requirements more stringent in the Senate version of the bill. But depending on where you stand, less stringent fuel requirements may be a good thing.
More from MSN Money
Drivers, jump-start your engines
The obvious winners would be the owners of virtually worthless older cars who had plenty of cash or the ability to obtain financing. Though the bill would do little to free up financing for strapped buyers, it would give relatively affluent consumers the push they might need to feel comfortable about purchasing this year.MSN Money personal-finance columnist Liz Pulliam Weston said the plan would provide a nice windfall for those who had planned to buy a new car anyway and had the means to do so.
"We sold our 1993 Ford Explorer to a friend for $350 earlier this year. She's going to get a nice little bonus if this passes," Weston said. "But I worry that people will saddle themselves with fat car payments they ultimately can't afford."
Weston recommended that buyers limit loans to four years and put down at least 20% of the price of the car. Her car-buying rule of thumb: Keep payments to no more than 10% of your monthly gross income.
For many people, that means a fairly cheap new car. But they're out there. (Here's MSN Autos' look at new rides under $10,000.) With a $4,500 voucher as a down payment and a four-year loan at 7.5%, the payments on a $10,000 car would be about $133. And don't forget, the sales tax on any new car, with a price of up to $49,500, bought between Feb. 17, 2009, and the end of the year is deductible on next year's tax return.
No help for the driving poor
Owners of clunkers without the credit or cash to buy would lose out. Not only would their taxes subsidize the bill, but the price of used cars would likely increase because the bill could take hundreds of thousands of them off the road. Parts to fix older cars would become more expensive, too, because the bill would require that engines and transmissions of trade-ins be destroyed and recycled.The Automotive Aftermarket Industry Association is one of the biggest opponents of the bill. Repair shops and resellers will see the cost of parts increase as expensive, dirty parts of old cars are made into scrap metal.
"We don't see anyone that is really going to benefit except the people that could buy the car on their own," says Aaron Lowe, the vice president of government affairs for the aftermarket group.
For someone with subprime credit -– a FICO score of 620 or below -– rates could easily top 15%, adding $50 a month to the payments on that $10,000 car.
Continued: The struggling dealers
Rate this Article
High