Jun 3, 2009

Will 'Cash for Clunkers' come alive?

Like a lot of Americans, Florence King, who needs a new car, is watching, waiting, wondering.

The Orlando woman is watching the progress of the "Cash for Clunkers" legislation, which could pay owners of older vehicles to trade them in on something more efficient.

She's waiting to see if it will pass, and in what form, as it winds its way through Congress.

And she's wondering: Should she buy a car now, "or should I wait to see if 'Cash for Clunkers' passes?" And if it does, would it affect what she buys?

Right now, it's tough to tell what's going to happen, and here's why: There are two proposals in Congress, one in the Senate, which was introduced in January, and another in the House, which is essentially a response to the Senate bill. And there are different versions of those two proposals.

It's likely they will be debated through June, and it's possible some blended version could pass before lawmakers take their summer break. The bills are patterned after similar programs enacted in several European countries, even though the German market, for example, isn't that similar to the U.S. market.

While "Cash for Clunkers" has been the popular shorthand for what began as Senate Bill 247 — the "Accelerated Retirement of Inefficient Vehicles" — the term "Cash for Guzzlers" might be more accurate. In a nutshell, the federal government, using tax dollars, would kick in between $2,500 and $4,500 toward the price of a new car. The older and thirstier your trade-in is, and the thriftier your new car is, the more you get. The money would go to the dealer, not you. Or, you could get credits to use on public transportation if you scrap your car outright.

And in return, your trade-in goes to the junkyard, where the drivetrain — presumably the engine and transmission, and possibly more depending on the final language of the bill — must be crushed into scrap metal. Other parts, such as the body and interior, could be resold.

Be aware that if you are eligible for, say, a $3,000 incentive, that is all you will get — not $3,000, plus the value of your old car. So if you are trading in a car worth, say, $4,000 to get a $3,000 credit, then it makes no sense.

This original Senate bill also has a provision to trade in your old car on a newer used car, with incentives ranging from $1,500 to $3,000. New or used, the bill could add $1,000 if you buy a highly fuel-efficient automobile such as a hybrid. There also are provisions for pickups, but that gets profoundly complicated.

The bills make an attempt to plug obvious loopholes. No, you can't go buy a $50 junker, get it running and trade it in for a $4,500 credit: The vehicle must have been licensed and driving for some to-be-determined period of time.

No, you can't trade in three junkers on one car, expecting to get $13,500 off — it's just one to a customer. The Senate bill would be retroactive to Jan. 1, and last for four years. President Obama has said he would like it retroactive to March 30. The House bill would limit the incentives to the first 1million customers. It's as confusing as it sounds.

So what's the holdup? There are a lot of them, mostly the result of good intentions with unforeseen consequences. One version applies to new vehicles only, with the intention of jump-starting the economy by creating demand, which would keep factories running.

Tom Folliard, president and CEO of CarMax, the largest used-car retailer, doesn't like it.

"Excluding [the used-car] segment of the auto industry could potentially have a negative impact on millions of American workers and thousands of U.S.-based businesses," he says.

And the part of the bills that would require scrapping the traded-in vehicle doesn't sit well with Aaron Lowe, vice president of government affairs for the Automotive Aftermarket Industry Association.

"For families that cannot afford the price of a new vehicle even with a government voucher, the 'Cash for Clunkers' program would limit their access to affordable transportation, a must for most working Americans," he says.

And even if there is a retroactive provision, how would that work? If you traded a car in months ago that qualifies, would that car have to sit on a lot somewhere, waiting to be scrapped? What if the dealer already sold it?

So in answer to Florence King, and all the other people like her waiting to see what will happen, I don't have much specific advice, but I will take this much of a guess: If you have a car that is more than 10 years old, and gets lousy mileage, I'd wait and see what happens.

To everyone else, the trade-in value of your car now, given the strength of the used car market, is likely comparable to, or greater than, what the "clunker" program would pay you to junk it.

So if you need a new car, buy it now, when competition and incentives are at a peak.

Sentinel Automotive Editor Steven Cole Smith can be reached at scsmith@orlandosentinel.com, at 407-420-5699 or through his blog at Enginehead.com.

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