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Friday, July 31, 2009

Cash For Clunkers: Now The Program Seems To Be A Clunker!

I mentioned in an earlier post how my van needs expensive repairs to its air conditioning system. Given the age of the van and its general condition, I decided it was not worth it. I started seriously considering trading it in for a new vehicle.

And then, I got side-tracked because more pressing problems had to be tackled. The first of these was a replacement for my dead dishwasher. That was taken care of by Tuesday, giving me more time to look into replacing my van.

I had not done much research into the CARS (Car Allowance Rebate System) program before now (yes, the cash for clunkers program, as it is popularly known has that official name. It is obvious that the acronym for the name came before the name, which is a meaningless combination of words chosen only to make up the acronym!). I believed that it probably would not cover my van anyways because my van is a reasonably efficient Japanese model, not some huge, inefficient American gas-guzzler. I did not believe that the government would give me any incentives given that I had not been entirely stupid when I bought the vehicle. My experience with government is that they give money to you only if you are completely stupid and get yourself into trouble because you are too idiotic to know better. If you are reasonably intelligent and make somewhat responsible choices, good luck getting government to give you the time of day!

But I did go to the CARS website to read up on the program rules. Essentially, you need to own a vehicle that gets less than 18 mpg in combined city/highway gas mileage. The vehicle has to be less than 25 years old. The vehicle has to be in driveable condition. It has to have been registered in your name for the past year, and insured according to state rules for the past one year. You need a clean title in your name. If you then trade in such a vehicle for a vehicle that gives at least 4 mpg higher gas mileage, you get $3,500 credit on the purchase. If the new vehicle gives at least 10 mpg higher gas mileage, you get $4,500 credit on the purchase. The dealer that completes the transaction is supposed to then junk the vehicle (crush it so that at least its engine and drive-train are not reusable), give you the required credit on the purchase of your new vehicle, and turn around and get cash from the government to compensate them. The program only works with a trade-in for new vehicles, not used vehicles. And the new vehicle has have an MSRP of less than $45,000. This is just the gist of the rules as are relevant to me. The article below explains the rules in greater detail:


Cash for Clunkers rules and tips

There's been a lot of confusion surrounding Cash for Clunkers. Here's a guide to help readers make the most of the government's program.

The federal government's new Cash for Clunkers program has caused a lot of excitement for consumers. It's also caused plenty of confusion.

Buying a new car is a major financial commitment and you don't want to get so carried away playing the Clunkers game that you lose sight of other big financial benefits you could stand to gain, with or without the government's incentive.
Clunkers: Do I qualify?

Fuel economy: Your car must have an EPA-estimated combined fuel economy of 18 miles per gallon or less. The only number that counts is the one reported, as of July 24 on the EPA's Web site. Your own personal experience with your car's fuel economy doesn't count.

Age: Your car must be under 25 years old, and they mean that literally. In other words, looking at the model year alone doesn't cut it. If you have a 1984 car, check the month it was manufactured. You can find it on a sticker inside your driver's side door. If your car was built in June or July, you'd better hurry. If it was built before June, you're out of luck.

Not on blocks: It would defeat the program's environmental purpose if all people did was drag out rusting "parts cars" to trade them in. Cars that aren't being driven don't pollute much.

So you have to prove that car has been continuously insured for the past year, which implies you've been driving it. Second, you have to show that it's been registered to you for at least a year. That shows it really was "your car" and not just something you picked up for a song just to cash in.

Cars vs. trucks

The rules differ depending on whether you're trading in a car or a truck. In either case, the vehicle you're buying cannot have a base price higher than $45,000.

Cars: If you're trading in a car -- as opposed to a truck or van -- and it meets all the qualifications, you're eligible to receive a credit.

If the car you're purchasing has EPA-rated fuel economy -- again, this is combined city and highway mileage -- of 10 mpg better than your trade-in, you're eligible for a $4,500 credit. If gets 4 to 9 mpg better, you're eligible for a $3,500 credit.

You could also trade in your car to get a new truck or SUV. In this case, with only a 2 mpg improvement, you would get the $3,500 rebate. With a 5 mpg improvement you'd get $4,500.

Trucks (Category 1): If you're trading in an SUV, van or pickup, things are even easier. The fuel economy requirements aren't as strict.

If you're trading in a basic truck, van or SUV -- in other words, not a heavy-duty truck or big passenger van -- you can get a $4,500 credit for purchasing a new truck or van with fuel economy that's better by 5 mpg or more. You can get a $3,500 credit for a 2 to 4 mpg improvement.

You can also trade your truck in for a new car, but if you do that you'll have to meet the stricter fuel economy requirements for cars.

Big trucks (Category 2): If you're trading in a bigger truck -- a truck with a wheelbase of 115 inches or a van with a wheelbase of 124 inches -- you're eligible for a $4,500 credit for buying a similar vehicle with a 2 mpg improvement or a $3,500 credit for buying one with a 1 mpg improvement.

Really big trucks (Category 3): 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.

Vehicles like this don't get their fuel economy rated by the EPA, so a rebate based on fuel economy wouldn't work. Trucks like these are eligible if they were manufactured before 2001 and are less than 25 years old. They're eligible for a $3,500 credit if traded in for a new Category 2 or 3 -- meaning a big or really big -- truck, van or SUV.

GVWR is the combined total of the vehicle's weight and it's maximum load capacity. Basically, it's how you much the vehicle could conceivably weigh if you loaded it down with as much stuff as it's designed to carry. To find out your vehicle's GVWR, look for a sticker inside the driver's door frame.

Category 3 truck owners are only allowed to trade for another Category 2 or 3 trucks. Plus, there's only a limited amount of money available -- $ 7.5 million -- for Category 3 truck owners.
More than just Clunker money

If you take the government rebate, what you give up is the ordinary trade-in value for your car. You are entitled to the car's scrap value minus $50 the dealer is allowed to keep, but don't expect to get much from that.

Beyond that, you are still eligible for all the usual customer rebates that would apply whenever you're buying a car. Don't forget, you're also entitled to negotiate the price of the new car you're purchasing, as always. Also, the Cash for Clunkers program applies whether you're buying or leasing your new vehicle.

Before you take advantage of the program, be sure to check the value of your vehicle. It may be worth more than the rebate amount. Even if it's worth less, keep in mind that your actual benefit isn't $4,500 or $3,500, it's the difference between your car's real value -- what you would ordinarily get for your car -- and what the government will give you for it. That difference may not be worth factoring into your car-buying decision.

After considering quality, resale value and your own personal preferences, a car that doesn't get you the clunker cash may be the better deal.

The CARS website also has a very poorly put together FAQ on all of these points. I have no idea why every question is repeated multiple times and so on. As I said, it is poorly put together and I did not put it together! But it does clarify what you need to do to qualify for and take advantage of the program. They also have a site that actually allows you to put in details of your current vehicle and proposed new vehicle, and it tells you how much of a CARS credit you can get.

It turns out that my van does actually get exactly 18 mpg in gas mileage, so my van qualifies for the program. I was shocked that I could have actually made such a stupid decision in my life as to qualify for government assistance down the road! I guess there is a first time for everything. I wanted to trade it in for a car that gets 28 mpg in gas mileage, so I could actually get $4,500 in credits from the CARS program to make the trade.

I then went to the Kelley's Blue Book website and put in the details of my van to figure out what I could actually get for it if I did not want to junk it under the CARS program. Given its age, mileage, condition and mechanical defects (primarily the problem with the air-conditioner), I found that my van was worth only about $3,800. So, I was looking at a very good deal with this government program. The government was willing to give me $700 more than what my van was worth, give it to me with no haggling, etc., and I did not have to go through the trouble of running ads in the classifieds and waiting for people to call me and so on. If I traded it in with a dealer, the trade-in value was closer to $3,000, so I stood to gain $1,500 over that with this program.

I have never actually sold a vehicle so far in my life. The first car I had got totalled in an accident. The second car I had was 18 years old, and I bought it from a friend for $250. When I was done with it, I gave it to a friend of mine for no money, just the promise that it would have a loving home till it died. It ran till it was 25 years old and had over 200,000 miles on it before it did finally die! The car I bought when I got my job and moved to where I live currently was a lemon that developed problem after problem throughout its entire life. Finally, I got fed up with it, and instead of selling it and saddling someone else with intractable problems, I donated it to a charity and took the tax deduction. I still own my 4th and 5th vehicles (which are the van, and the car my wife drives).

I also found out that the CARS program was supposed to run until November 1st or when the program gave out credits of $1 billion, whichever occurred earlier. So, I decided I would research this deal in more detail in the next few days. In the meantime, my friend, who was supposed to visit me from the west coast, landed up, so I did not have much time to do a lot of further research.

When I did get time, I went to the CarsDirect website to look for good prices for the vehicle I wanted to buy. I had used their service in 2003 to buy the car my wife drives. It had been an absolute pleasure as the deal had been totally hassle-free. They gave me a price-quote that was better than any local dealer was willing to come close to. So, I completed the purchase through them. All I had to do was then print out their confirmation along with the information about the dealer I would have to pick the car up from. I got there, gave them a check for the CarsDirect price, and drove out in the new car. No fuss, no muss, no haggling, no bargaining, no unnecessary stress of any sort. When I bought my van also, I used their service to research prices. The only reason I did not go with them was because I walked into a local dealership, and offered them $500 less than what CarsDirect was willing to sell me the van for, fully expecting to be laughed at, but instead they agreed to my offer and sold me the van (it was the end of a bitterly cold winter and the weather seemed to have had a depressing effect on their monthly and/or quarterly sales. I walked in around the 25th of the month and the sales staff was desperate to make any deal they could)!

Unfortunately, CarsDirect did not have any dealers in my area for the car make and model I had picked out, so they could not offer to sell me the car themselves. I was offered the option of sending email out to various area dealers and they would respond with price quotes. I was not happy with it, but at least I got a good idea what the invoice price was, what incentives are being offered, what the prices for the various options were, etc.

Only one dealer actually got back with a price quote by email. The price was very decent, so I was happy that I would probably not need to haggle with the dealer. I asked them about the CARS program and they said I had to bring in my title and keys, and proof that I had insured the vehicle for the past 1 year. They would take care of proving that it had been registered for the past year. I immediately called my insurance company and they were kind enough to fax me a letter confirming continuous insurance coverage for the past year right away.

I put all this aside, thinking I would drive over to the dealer and settle the details in person after my friends had left. Now, it looks like I should have acted right away. The CARS program has itself become a clunker. In 4 days of program operation, it has burned through the $1 billion allocated to it originally, throwing the whole program into massive confusion starting Thursday evening. Then, the house got involved and passed a bill approving another $2 billion for the program. The senate is expected to act on the bill in the next week or so. Assuming that the bill becomes law, it looks like more deals are possible in the coming weeks. This is outlined in the news item below:

Popularity, Web snafus nearly broke 'clunkers'

This was one government stimulus plan that yielded quick results. Maybe too quick.

Far more drivers signed up for the "cash for clunkers" program than anyone thought, overwhelming showrooms, blowing through the initial $1 billion set aside by Congress and leaving dealers panicked over when or if the government would make good on the hefty rebates.

Confusion reigned, even as dollars flowed into dealerships starved for business for months.

The government Web site set up to process rebates of up to $4,500 per new car could not keep up with demand. Washington scrambled to come up with more cash and sent mixed signals about how the program would unfold.

"A borderline train wreck," said Charlie Swenson, general manager at Walser Toyota in Bloomington, Minn. In Glen Burnie, Md., Bob Bell, who owns Ford, Kia and Hyundai dealerships, said his employees were overwhelmed filing for reimbursement from the government's clunky system.

He compared the program to a military operation: "It is a disaster," Bell said. "We met our objective, but the losses were terrible."

The House voted Friday to replenish the program with $2 billion, setting up likely Senate action next week. Sen. Carl Levin, D-Mich., said the administration assured lawmakers that "deals will be honored until otherwise noted by the White House."

Like a car salesman beckoning from the lot, Levin said "people ought to get in and buy their cars" while the hot deals last. The White House joined in the pitch, telling consumers the program is solid through "this weekend." That left unclear what happens after that, until more money is approved for it.

The Car Allowance Rebate System offers owners of old cars and trucks $3,500 or $4,500 toward a new, more fuel-efficient vehicle, in exchange for scrapping their old vehicle. Congress last month approved the plan to boost auto sales and remove some inefficient cars and trucks from the roads.

It was unclear how many cars had been sold under the program on Friday, but the number was far higher than anyone had expected. About 40,000 vehicle sales were done through the program but dealers estimated they were trying to complete transactions on an additional 200,000 vehicles, said Sen. Debbie Stabenow, D-Mich.

"I think the general public right now is looking for a bargain in any way to spend their money," said Kitty Van Bortel, who owns Ford and Subaru dealerships in Victor, N.Y., "and this was perceived as an incredible bargain and people took advantage of it."

The backlog had been building for weeks. Auto dealers could begin offering the rebate at the beginning of the month, and many began doing so over the July 4 weekend. But it was not until a week ago that dealers could begin filing for reimbursement, leaving them on the hook for as much as $4,500 per car until they get the federal money.

That's when they ran into difficulties with a federal Web site ill equipped to handle the volume of claims and the multiple documents each submission requires. Some dealers said the process took upward of an hour for each transaction, caused repeated rejections and consumed many hours submitting and resubmitting data.

At Walser Toyota in Bloomington, customers began lining up on Monday before doors opened at 7:30 a.m.. Swenson said. By that afternoon, his dealership had done 150 trade-ins under the program. His salesmen worked overnight to scan and submit forms.

But of the 150, he said, only 30 received responses and all of those were rejections.

Dennis and Marcia Strom hurried into that dealership Friday, fearing the rebates might not last, and filled out paperwork for a new car.

"I might have waited until the truck died," Dennis Strom said of his 14-year-old Dodge Dakota. "It's a good vehicle that suits our needs. But it's not worth $3,500."

About 100 people were looking to sign deals there but were holding off because of uncertainty over the rebates.

It took three hours Thursday for employees at one of Sam Pack's Dallas-area Ford dealerships to submit just eight documents. Pack said he feared that many deals made under the program wouldn't be properly reimbursed.

"The details of processing this is beyond what anybody would think is reasonable," he said.

Federal officials said they have increased the capacity of the submission system and added staff to work hot lines and process voucher applications.

In Victor, Van Bortel considered pulling the plug on rebates at the Ford and Subaru dealerships she owns, even though her ads promoting the rebates were locked in for the weekend.

"Honestly, in all my years in the car business, I have never seen such a mess," she said.

Still, it was a mess created by too much action, instead of not enough.

Officials hoped that when the dust cleared from the confusion, the program would be a tonic for the beleaguered auto industry and a benefit for the environment, with many inefficient cars taken off the road.

President Barack Obama said the program has "succeeded well beyond our expectations" and praised the House for moving quickly to establish new financing.

"This is a test drive," Rep. Steve Israel, D-N.Y., said of the program, "and people bought it big time."

Bell, in Glen Burnie, said the rebates have "pulled forward a tremendous market."

"It's wonderful to sell them," he said. "But if you have to pay off a vehicle immediately, you're going to have a severe cash flow deficit."

Dealers are used to working with similar incentive programs offered by auto manufacturers, said John McEleney, chairman of the National Automobile Dealers Association. But the rules are much less stringent under those programs, and automakers generally don't require nearly as much documentation, he said.

His group surveyed dealer franchises using the program and realized the money for it might be getting short. One survey finding: Consumers were opting to use the higher $4,500 rebate over the $3,500 amount by a margin of 2-to-1, eating through the money faster.

"It has been very problematic," McEleney said. "I don't believe that anyone anticipated the volume would be this great."


But in the meantime, car dealers are being warned not to make deals over this weekend:


Dealers warned off Cash for Clunkers

Auto dealers' association advises members to play it safe and avoid Cash for Clunkers deals this weekend.

Despite the Obama administration's promises that any Clunker deals written this weekend would be honored, the National Automobile Dealers Association is advising its members to play it safe and not close any more deals until the program's fate is clearer.

"Regarding auto sales this weekend, one possible alternative is for dealers to take deposits in lieu of consummated sales with an eye toward legislative success next week," NADA spokesman Charles Cyrill wrote in an e-mail.

The House of Representatives allocated $2 billion more on Friday to continue the program after it apparently burned through its original $1 billion budget in the week since its official July 24 start date. The measure faces opposition in the Senate, however.

"We could have a legislative conclusion very quickly with the promise of more money for the program," Cyrill said later by telephone. Until that's settled, he said, the dealers' organization is recommending that dealers proceed with caution.

Since the rules of the program require dealers to render traded-in vehicles permanently inoperable before applying for their rebates, dealers whose applications are not honored could be left with no money and no vehicle to sell.

Under the plan as enacted, vehicles purchased after July 1 will be eligible for refund vouchers worth $3,500 to $4,500 on traded-in gas guzzlers. The trade-in vehicle has to get a combined city and highway fuel economy rating of 18 miles per gallon or less.

The program aims to help the struggling auto industry by taking inefficient cars off the road and spurring new sales.


So, where does all this leave me? I guess that will be known only in the coming days as I try to actually make the deal I want to. Or maybe it will never happen. It may have been a bad idea to rely on a government program in the first place to make this whole swap take place. I guess it is entirely unsurprising that the government would wait for a bunch of people to get on the rug before pulling it out from under them. Only time will tell whether I will land on my feet or on my head. Hey, after all the van still runs perfectly fine. I can survive without an air conditioner and a little rust is not going to kill me!

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