How Does the Cash for Clunkers Program Work?

Question: How Does the Cash for Clunkers Program Work?

Cash for Clunkers is a federal program designed to stimulate U.S. auto sales and help the environment by providing an economic incentive for consumers to replace old, low-mileage vehicles with new, fuel-efficient models that are safer and emit less pollution and fewer greenhouse gases.

Answer: The basic concept is simple: if you trade in a low-mileage vehicle for one that meets a higher mileage threshold set by the Cash for Clunkers program, the government will provide up to $4,500 to help you purchase the new fuel-efficient vehicle.

The details, of course, are more complicated.

Under the Cash for Clunkers bill passed by Congress in June 2009, the passenger car you trade in must meet two criteria:

1. The car has been registered and in use for at least a year (this provision prevents people from buying an old beater from a junkyard and trading it in for a new car);
2. The vehicle must have a combined city and highway fuel-economy rating of 18 mpg or less.

The new car you purchase also has two criteria to meet:

1. To qualify for the Cash for Clunkers program, the new car must be priced at $45,000 or less;
2. The new car must have a federal fuel-economy rating that is at least 4 mpg better than the old car you’re trading in to qualify for a $3,500 voucher, or be rated at least 10 mpg better to get the maximum payment of $4,500.

Example: Trade your trusty but rusty 1985 Chevy Impala V-8, rated at 18 mpg, for a new 2009 Chevy Malibu (22 mpg) or a 2009 Honda Accord (also 22 mpg) and the government will put up $3,500 to help with the purchase. Downsize to a 2009 Chevy Aveo (28 mpg) or the 2009 Honda Civic (29 mpg), and you qualify for the $4,500 subsidy.

The rules for trucks are a little trickier.

For light- and standard-duty model trucks, which includes most sport utility vehicles (SUVs), vans and pickup trucks:

• The old vehicle must have a fuel-efficiency mileage rating of 18 mpg or less
• The new vehicle must be rated at least 2 mpg better to qualify for the $3,500 voucher or at least 5 mpg better for the $4,500 payment.

For heavy-duty trucks, which includes models with a gross vehicle weight of 6,000-8,500 pounds:

• The old truck you’re trading in must be rated 15 mpg or less.
• The new truck must be rated at least 1 mpg better to get the $3,500 voucher and at least 2 mpg better to qualify for the $4,500 voucher.

The government doesn’t assign mileage ratings to work trucks (which weigh in at between 8,500 and 10,000 pounds of gross vehicle weight), so the Cash for Clunkers program uses age as the criteria for determining whether they qualify for a government trade-in subsidy.

The old truck has to be a 2001 model or older, and $3,500 is the only amount offered to help with the purchase of new work trucks.

To compare vehicle mileage ratings for all model years back to 1985, see the interactive chart at www.fueleconomy.gov.

Cash for Clunkers FAQ:

• What is the Cash for Clunkers Program?
• How Does the Cash for Clunkers Program Work?
• What are the Benefits of the Cash for Clunkers Program?
• What are the Drawbacks of the Cash for Clunkers Program?
• Who is Eligible for the Cash for Clunkers Program?
• How Much Will the Cash for Clunkers Program Cost Taxpayers?
• What Happens to Old Cars Under the Cash for Clunkers Program?
• How Long Will the Cash for Clunkers Program Last?