Cash for Clunkers FAQ

Cash for Clunkers, the $1 billion government program that pays thousands of dollars for your old car if you switch to a newer more eco-friendly vehicle, kicked off this week. Does your car or truck qualify? Should you sell it to the government? Does this policy make any sense? Let's get to the answers:

1. Does Your Vehicle Qualify?
Yes, if:
-- It's less than 25 years old
-- It's listing price is under $45,000
-- It has an EPA estimated 18 MPG or under -- (check official MPG here)
-- You can prove that it's been continuously insured to prove that you're not just trading in a lemon that's been collecting moss in your backyard.

2. How Much Money Will You Get?
It depends on whether your new vehicle is a car, SUV or truck.

Trading in a Car...
If you trade in a car for a car, and your new car's fuel economy is 4 - 9 MPG higher than your clunker, you get $3500. If the new car gets 10+ MPG higher, you get $4500. If you trade a car for a new truck or SUV, only 2 mpg higher will get you $3500, and only a 5 mpg improvement will net you $4,500.

Trading in a Truck
For SUVs and trucks, the standards are much looser. If you're trading an SUV or van for another SUV or van, a 2-4 MPG improvement lands you $3500, and 5 MPG or more gets you $4500. The standards get even looser for larger trucks and as CNN explains: "If you're trading in a truck with Gross Vehicle Weight Rating (GVWR) of 8,500 to 10,000 pounds, all you have to do is buy a new one. Fuel economy doesn't even factor into it."

3. Should You Do It?
There are a few things to consider. The first is the actual value of your car, which might be higher than the government rebate. The second is the price of the car you're buying. So if your "clunker" is worth $3000, remember that the rebate is only netting your $500-$1500 toward the price of the next car, which might not be enough to cover your eco-splurging on a hybrid.

4. Is This a Good Policy?
The stated purpose of C4C is to boost auto sales this summer and put more eco-friendly cars on the road. It's hard to find many die-hard supporters of this policy among journalists, for a couple reasons. First of all, the policy clearly heavily favors trucks and SUVs, which seems to go against the stated purpose of encouraging better fuel economy. Second, it weirdly discriminates against trading in fuel-efficient cars, even if you want to buy a super-fuel efficient car, because of the 18 MPG cut off. As David Riley from BusinessWeek reports:

Dana Barrows, an Ann Arbor, MI tax preparer, says she would like to trade in a 1998 Subaru Legacy with over 200,000 miles on it, and buy a Honda Fit. But the Subaru doesn't qualify as a trade in, with a fuel economy rating of 23 mpg. She would get no CARS rebate despite the fact the Honda she wants has a fuel economy of 31 mpg. "But someone can get thousands for trading a pickup in as long as they buy a pickup that gets 2 mpg more? Where is the sense?"

Third, it's not efficient. Edmunds.com calculates that the policy will stoke about 50,000 car sales before November, when the C4C fund dries out. That comes out to the government paying $20,000 per car. So despite evidence that the policy is already juicing new cars sales,
it's far from clear that this will be a billion well spent.