A misunderstood bill
 
The “Cash for Clunkers” bill seems to be the talk of the summer of 2009. I have noticed that despite its popularity as a topic of choice in cocktail parties, it is also a widely misunderstood bill. Not only because of its inappropriate and oversimplifying nickname. But also because of the “going green” craze that has been taking place lately in the automobile industry, the media and subsequently, the American public’s mind. Since almost every other person I’ve been chatting with seems to have his or her own idea about what “Cash for Clunkers” is about, I have decided to do the research myself and clarify it for my own sake (as well as Middle Class America’s sake!).
 
Is the ARIVA bill for you?
 
For the record, you might want to know that the bill’s official name is the “Accelerated Retirement of Inefficient Vehicles Act” or ARIVA. The ARIVA bill is a real law since June of 2009 when Congress passed it and President Obama signed it. The Department of Transportation (DOT) has been mandated to overlook the regulation and execution of this program. Consumers will be able to take advantage of ARIVA from early August until November of 2009, or until the allotted 4 billion dollars budget is spent (whichever comes first).
 
This is good news for us drivers that own an older car that burns lots of gas (and therefore lots of dollars). For a limited time, the government gives us the opportunity to replace our wasteful daily beater with a brand new, more energy efficient one in exchange for a cash voucher. Technically speaking, this means the ARIVA program guarantees you get up to $4,500 for your trade-in when you purchase a new (and significantly) more frugal car. This raises two essential questions for those of us that are interested in replacing their vehicle: “Do I qualify for it?” and “In my particular situation, is this really as good a deal as it sounds?”
 
"I like that! But do I qualify for it?"
 
Condition #1: When you trade in your vehicle, you must purchase a new one. It just won’t work if you replace your old one with a recent used one or even a Certified Pre Owned car.

Condition #2: Your old vehicle must be in drivable condition. If it’s been sitting in the backyard for years and does not even start, you can forget about your ARIVA voucher.

Condition #3: Your old vehicle must have been continuously insured to the same owner for at least one year straight prior to trade-in. This leaves uninsured drivers out.

Condition #4: Your potential trade-in must be a year 1984 or later model. In other words, vintage cars or 1970’s hoopties need not apply.

Condition #5: Your old vehicle must have (per manufacturer’s specification) a combined fuel economy of 18 miles per gallon, or less. Anything above that is too good to qualify for “Cash for Clunkers”.

Condition #6:  Likewise, the new vehicle you choose must be efficient on 2 levels, i.e. provide a minimum mileage requirement AND a sizeable improvement over your previous vehicle’s mileage. Simply put, the more efficient the new vehicle is, the more cash back you get on your trade-in ($3,500 or $4,500). Since a picture is worth a thousand words, take a look at this excellent chart issued by jalopnik.com.

 
 
Don’t get fooled by the bill’s nickname…
 
I do not know who the genius that coined the “Cash for Clunkers” phrase is, but while it's a catchy one, it is also inaccurate. Some drivers that might believe they are entitled to the program will find out they are left out while others that did not even think of using it are actually qualified.

…Or you might be disappointed

For one, you don’t have to currently own a dirty, old raggedy bucket to take advantage of this bill. Conditions #2 and #4 even make it clear that people who operate clunkers by definition are the least likely to qualify.

Secondly, a vehicle that’s quite the opposite of the proverbial clunker like a 10-year-old, clean but inefficient truck or SUV is almost certain to be eligible for an ARIVA trade-in.

Worse, it disqualifies drivers that drive cars that used to be good but turned into real clunkers for different reasons. For example take the case of my friend Alin, a broke 20-year old student that inherited the family’s poorly maintained 1995 Honda Accord DX. When new, this car’s EPA was a solid 27 mpg per manufacturer’s specification. Unfortunately, after clocking more than 200,000 miles, it is in dire need of a comprehensive tune-up since it now only gets a measly 17 combined mpg. Alin’s financial situation doesn’t enable him to get the car serviced. And because the manufacturer’s sticker EPA is what counts according to condition #5, Alin won’t find salvation in the Cash for Clunkers program.

Don’t get taken for a ride

Are you qualifying? Great! Still, be careful not to get abused in the process and watch out for these traps:

Caveat #1: Know your trade-in’s market value.

By all means, know what your old car is worth! If your trade-in is running smooth, is clean and well maintained but only gets low mileage, use NADA or eventually KBB to make sure you don’t get ripped off. You don’t want to get only 45 hundred dollars back on a trade-in that’s actually worth 6 thousand to 7 thousand dollars for instance.

Caveat #2: Don’t forget the dealer’s cash back program.

Don’t forget the manufacturer’s and dealer’s discounts. Even if you get a good deal with your ARIVA trade-in, you are still entitled to use whatever cash back or easy financing offer dealers usually provide today. Edmunds.com says the average dealer incentive on new car sales was almost $3,000 in 2008. Make sure the salesperson doesn’t forget about that.

Caveat #3: Don’t buy more car than you really need.

Resist temptation! Don’t get talked into buying more car than you need or can afford just because you get an ARIVA trade-in plus cash back from the dealer. That would void the whole deal and the real winner would be the car dealer, not you. Under the ARIVA bill, the purchase price for your brand new car is capped to $45,000 anyways.

Caveat #4: You DON’T have to buy a hybrid.

It’s funny how half of the people I’ve talked to about Cash for Clunkers believe the contrary. Yet, there is no need to go buy a hybrid car to benefit from the program. Cash for Clunkers works for any kind of car, whether gas-powered or hybrid. So as long as it is brand new, feel free to choose any of these.

Living up to the hype

Hopefully the ARIVA bill will drive up new car sales in America, and consumers will be giving more of their business to our domestic brands. Indeed, Ford, GM and Chrysler are in dire need of selling more vehicles to consumers to boost their revenues in America. They all have competent eligible vehicles, with the Ford Fusion, the Chevrolet Malibu and the Dodge Avenger respectively.

If successful, this ARIVA bill could dramatically help renew the pool of cars people are driving in America nowadays. Less black-smoke-producing clunkers on our streets and freeways ideally means more and more fuel efficient cars on the road. Nationwide, motorists will consume less gas and therefore lower their carbon footprint.

However I don’t know if this bill will appeal to most people that need to replace their cars. People that drive buckets by choice or by circumstances usually do not aim at buying shiny brand new cars, even with a $4,500 rebate.

Upgrading what middle class america drives: too ambitious?

In Europe, where excellent gas mileage is expected by drivers because gas is so expensive, comparable programs have already successfully blossomed in Germany, Italy and France to renew fleets and personal vehicles.

Sure, the idea is great - but renewing a whole country’s pool of cars is quite an ambitious endeavor. So the real question is: how much public money is needed to make it happen?

To give you an idea, the currently proposed 4 billion dollars in taxpayer’s money would help replace about 1 million cars (considering an average $4,000 ARIVA trade-in). There is an estimated 7 million cars in metropolitan Los Angeles alone (source: cityglance.org). Cash for Clunkers is only a drop in the ocean.

More crunch to munch on 

If you happen to have a lot of time on your hands (and I really mean a lot...), you can read and download all details concerning the program on www.cars.gov. CARS is a perfect acronym that stands for Car Allowance Rebate System.