Dozens of media reports this morning tout the benefits of the so-called Cash for Clunkers program kicking off this morning - but a few offer important cautions.
The Houston Chronicle warns, "The only way the CARS cash incentive makes good financial sense is if you can afford to buy a new car... Taking on new debt in this economy is not a decision to take lightly, no matter how much money will be knocked off the purchase price to get you in a car today."
Washington, D.C.'s Examiner notes, "It is also important that we not forget the quick depreciation of new vehicle values. That $19,000 vehicle, even with the rebates applied, is likely to have a trade-in value in the $9,000~10,000 range after one year of ownership... barely at the break-even point. Maintenance items (e.g. oil changes) will still be the responsibility of the owner as well, so there is no money to be saved there." Even the fuel economy boost at the heart of the program doesn't mean the offer makes financial sense for everyone. "Let's say the vehicle you are trading in is a truck or SUV with a DoE fuel economy rating of 12 mpg. The vehicle you purchase is a $19,000 small sedan with a DoE fuel economy rating of 22 mpg and you drive an average of 15,000 miles annually. With a gas price of $2.40 per gallon, the pickup truck will cost $3,000 in fuel over one year. Conversely, the new vehicle with better fuel economy will only burn through $1,636 in that same period." A savings of $113 a month is unlikely to offset the cost of adding a new car payment to your monthly expenses.
USA Today notes that many vehicles don't qualify - even some that seem to be obvious clunkers. "For example, a popular 1984 Chevrolet model, the Celebrity with six-cylinder engine, is rated 19 mpg, so it wouldn't qualify. Nor would the 22-mpg '84 Ford Tempo, another popular sedan. The past decade's top-selling Honda Accords and Toyota Camrys are rated 20 mpg and more, so they aren't eligible trade-ins. A big Ford Crown Victoria, at 18 mpg, barely qualifies."
New York's Buffalo News warns, "The actual financial credit doesn't come through until the paperwork is cleared by the government. That could take up to two weeks. Some dealers may let you drive home before then, but if somehow you don't qualify for that $4,500, you will have to pay it yourself."
Even the federal government is offering some warnings. National Highway Traffic Safety Administration spokesperson Karen Aldana told Consumer Affairs that Americans need to be on the lookout for scams. Consumers, she said should be aware that they "do not need to register or obtain a voucher to benefit from the program."
The program offers a unique opportunity for those who are holding onto an older car and looking for a replacement, but a little caution is in order. The program may run out of money before the November 1 deadline, but is unlikely to end in its first few days, so we advise buyers interested in the rebate to take their time, comparison shop and read the fine print - you don't need to take advantage of the offer in its first week. The rebates and incentives automakers are attaching to the government's program may even sweeten over the next few weeks, if the program doesn't drain their backlog of inventory as quickly as some hope.
If you're interested in the Cash for Clunkers program, check out our Cash for Clunkers page, and our rundown of the best Cash for Clunkers deals. If you already know which car you want, you can contact local dealers here. For the latest news on the program, check out Cash for Clunkers news.
