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Cash For Clunkers Program

Posted By Jim On 06/10/2009 @ 3:13 pm In Cars | 57 Comments

Update: The bill has passed both chambers of Congress [3], getting through the Senate on Thursday, and President Obama is expected to sign it into law soon.

The Cash for Clunkers program would provide a voucher worth $3,500 to $4,500 to consumers trading their vehicles in. The vehicles have to be in running condition and get less than 18 miles a gallon in fuel efficiency. The value of the voucher is determined by this schedule:

  • For passenger cars, the new car has to get at least 22 MPG (EPA combined MPG). You get the $3500 voucher if you get an improvement of at least 4 MPG, $4500 for at least 10 MPG.
  • For light duty trucks, SUVs, and minivans, the new vehicle has to get at least 18 MPG. You get $3500 for an improvement of at least 2 MPG, $4500 for an improvement of at least 5 MPG.

Here’s the WSJ chart describing the benefit:

The bill has two purposes:

  1. Removes older, less efficient cards from the road. Many of the cars that qualify are probably worth less than the $3500 or $4500 voucher, so consumers are still holding onto them because it makes sense to. This would give that added incentive to upgrade.
  2. Increases sales of new cars.

There are downsides to the bill though – the bill would call for the cars to be crushed and the vouchers would only applicable towards the purchase of a new vehicle, rather than a used one.

I like the idea of it but I think we’re creating a lot of special tax credits that prop up various industries. Also, not everyone is able to take advantage of these new credits, which is a bit unfair. The prime example is the $8,000 first time homebuyer credit [4], which was created to artificially boost the housing sector. Now we have this proposed $4,500 credit that will only help people who are close to buying a new car.

What do you think?

(Photo: wickenden [5])

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[2] Email: mailto:?subject=http://www.bargaineering.com/articles/cash-for-clunkers-bill.html

[3] bill has passed both chambers of Congress: http://online.wsj.com/article/SB124485495153311725.html

[4] $8,000 first time homebuyer credit: http://www.bargaineering.com/articles/8000-first-time-homebuyers-credit.html

[5] wickenden: http://www.flickr.com/photos/wickenden/3693742013/sizes/m/

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