$1 Billion 'Cash for Clunkers' Can do What?

The government soon may be handing out vouchers for new cars. Cash giveaways have spurred trade-ins in Europe. Will they help in the U.S.?

The government really wants to get the U.S. automobile industry into gear. It has already stepped in to bail out carmakers with money, loans, and special bankruptcy treatment. Now it seems ready to dole out $1 billion to consumers in the form of vouchers to buy newer, more-efficient vehicles under the Cash for Clunkers program.

Proponents say it will modernize the U.S. vehicle fleet, getting rid of older cars that pollute more, are less safe, and burn more gas. More important to many, the money could save jobs in the auto sector, from parts suppliers to dealers, by lifting new car sales by at least 250,000 this year. One sign of the measure's popularity: The Senate passed it on a 91-5 vote.

President Barack Obama had repeatedly urged Congress to pass the bill and is expected to sign it by July 1, its proposed effective date.
Clunker qualifications

Still, there are critics. Some say the eligibility requirements are too stringent for the program to have much effect. Others say the government has already spent too much to help the car industry. There are also questions about whether the folks driving those clunkers can afford brand-new wheels. "It is just too big of a price tag for the minimal results it would produce," said Senator Ben Nelson of Nebraska, the only Democrat to vote against the act.

Here are the basics:

• Vouchers of either $3,500 or $4,500 will be given to people who trade in an older vehicle to buy a new one.

• The trade-in, or clunker, must be no older than 25 years, have average gas mileage of less than 18 miles per gallon, and have been owned by the seller for at least a year.

• The new car must cost less than $45,000 and get more than 22 mpg. To get the higher voucher, the new vehicle must also average 10 more miles per gallon than the old one.

• Trucks—SUVs, pickups, and minivans—have different rules. An improvement of at least 2 mpg between the old and new vehicles qualifies for $3,500; 5 mpg or more entitles buyers to $4,500.

• There are no income limits on voucher recipients, nor restrictions on where the new cars are made.

+ "Cash for Clunkers" Law Signed by Obama
+ Cash for Clunkers Rebate Eligible Vehicles List by Edmunds
+ Cash For Clunkers Car Buying Stimulus Bill
+ BMW Used Cars Eligible for 'Cash For Clunkers'
+ Cash for Clunkers: Eligible Used Cars List Under $3,500

Germany instituted a scrappage program earlier this year, followed by France and Britain. While car sales are down significantly from prerecession 2007 totals, sales in those countries have risen since the subsidies began. There's little question that Detroit could use a similar boost. Americans are on track to buy 9.5 million new vehicles this year, down 40% from 16.1 million in 2007.

Edmunds.com CEO Jeremy Anwyl says, however, that carmakers and buyers alike will be disappointed. He argues that the industry needs help raising sales by 3 million vehicles or more, not 250,000 to 400,000. "The scale is just wrong," he says.

Anwyl urges consumers to read the fine print. The program is not a rebate or a tax credit, though, based on public comments at Edmunds.com, he says many people think so. "Don't get too excited," Anwyl says. "Chances are you're not eligible."