This just in:

What is the criteria for Cash for Clunkers?

Senator Stabenow, Michigan (D)

According to a letter from Michigan Senator Stabenow’s office, here is some more information:

Today the Senate passed an emergency supplemental spending bill that included a new “cash for clunkers” program. The bill was already passed by the House of Representatives, so it now goes to President Obama for his signature.

Under the provisions of the bill, consumers may trade in their older vehicles and receive vouchers worth up to $4,500 toward the purchase or qualified lease of a new, more fuel-efficient car or truck. The $1 billion program provides vouchers for vehicles leased or purchased before November 1, 2009. Once the bill is signed, the Administration will formalize the program and release detailed information about how it will work.

Trade-in Vehicle Requirements

· Be in drivable condition

· Be continuously insured and registered to the same owner for at least one year

· Have a combined fuel economy value of 18 mpg or less (Work trucks must be pre-2002 regardless of mpg)

· Not be more than 25 years old with historic or aesthetic value. These vehicles are valued by hobbyists or are a valuable source of restoration parts.

New Vehicle Requirements

· The new vehicle must have a manufacturer’s suggested retail price of less than $45,000.

· New passenger cars with mileage of at least 22 mpg are eligible for vouchers. If the mileage of the new car is at least 4 mpg higher than the old vehicle, the voucher will be worth $3,500. If the mileage of the new car is at least 10 mpg higher than the old vehicle, the voucher will be worth $4,500.

· New small trucks or SUVs with mileage of at least 18 mpg are eligible for vouchers. If the mileage of the new truck or SUV is at least 2 mpg higher than the old vehicle, the voucher will be worth $3,500. If the mileage of the new truck or SUV is at least 5 mpg higher than the old vehicle, the voucher will be worth $4,500.

· New large trucks (pick-ups and vans weighing between 6,000 and 8,500 pounds) with mileage of at least 15 mpg are eligible for vouchers. If the mileage of the new truck is at least 1 mpg higher than the old truck, the voucher will be worth $3,500. If the mileage of the new truck is at least 2 mpg higher than the old truck, the voucher will be worth $4,500.

· Consumers can trade in a pre-2002 work truck (defined as a pick-up truck or cargo van weighing from 8,500-10,000 pounds) and receive a voucher worth $3,500 for a new work truck in the same or smaller weight class. There are no EPA mileage measures for these trucks; however, because newer models are cleaner than older models, the age requirement ensures that the trade will improve environmental quality. Consumers can also “trade down,” receiving a $3,500 voucher for trading in an older work truck and purchasing a pick-up or van weighing between 6,000-8,500 lbs.

· The mpg values are EPA combined city/highway fuel economy as posted on the window sticker of new vehicles and can be found at fueleconomy.gov.

Link to the Senator’s Website.

The C4C or CFC program is new & there’s lots of Buzz about it.  We don’t have the final Law yet; but here are some preliminary FAQ’s to start with . . . .

Q: Is the billed signed into law yet?

A: On Thursday, June 18th the Senate voted to KEEP the Cash for Clunkers provision in the $106 billion dollar wartime spending bill.  This means that both the house and Senate have approved the spending bill and now it will go to President Obama to sign. The wartime spending bill is expected to be signed shortly and then it will take 30 days to get the CFC  program up and running.

Q: Does the Cash for Clunkers bill apply to used car purchases?

A: Currently, the language of the proposed bill is only for new car purchases.

Q: If I already purchased a new car in the past few months can the voucher apply to my past purchase?

A: We can’t answer that question until the final bill is signed into law but…the answer looks like a NO.  This is because all cars traded in for the program will be sent to the scrapyard.  If you already traded in your car, there would be no guarantee that it is off the road.

Q: If I want to buy a new car now and have a clunker that qualifies, can I  get the voucher credit once the bill goes into effect by bringing in the old car to the dealership where I purchased my new car?

A: Again, we can’t answer that question until we see how the bill is implemented.  If you can hold off until further information is available, it may be the best choice.

Q: If my car is worth more than $4,500, how would the Cash for Clunker voucher work?

A: The program would not provide any benefit if a car dealer would give you more than $4,500 for your trade-in.  If you want to purchase a new car, do not wait on this bill if your trade is worth more than $4,500 since it will not provide any upside relief.

Q: If dealers are offering cash incentives toward a new car purchase, would that be in addition to this voucher?

A: The program is independant from manufacturer buying incentives.  For example, if a car dealer is offering $4,000 off the list price of a car and you qualified for a $4,500 voucher from your trade, then the total reduction off the MSRP would be $8,500.  You should always shop for the best deals before buying a car.

Q: I have two old clunkers, can I trade-in both cars for a $9,000 voucher toward a new car purchase?

A: The current wording of the bill would seem to indicate that only ONE voucher can be applied to a new car purchase.

Q: How do I know if I qualify for a $3,500 voucher or a $4,500 voucher?

A: We need to wait on the final wording of the bill.  Since there are various versions of the measure in play, we will notify everyone on our email list when the final bill language is signed into law?  The amount will depend on the car you purchase and the increase in average MPG (probably not an actual MPG; but rather an EPA rating of MPG).

Q: Can I go to the junkyard a buy an old car and use it for a trade?

A: The final language of the bill is still to be decided but it seems that you will have to show that the car is operational and that you have owned the car for a period of time.  Right now, that may be a one-year period.

Q: What will happen to the car I trade in?

A: Once again, we have to wait for the final language but it would seem that the car would be recycled so cars that are worth more than $4,500 on a trade would not be viable for this program.

Q: My car is old and originally got more than 18 mpg, but now it gets 14 mpg.  Will it qualify?

A: That is another popular question.  We will have to wait and see if the bill provides a reasonable assessment of current MPG versus original manufacturer EPA MPG.

Q: How long will the program last?

A: That is still unknown.  Some insiders were hoping to get funding that would keep the program running for one year.  However, if funding is reduced, the program may only last a few months.

Q: Are there restrictions on the year of my trade-in?

A: The car can not be any older than a 1984 model year vehicle.

Q: Why would some trades qualify for $3,500 and other trades get $4,500?

A: The difference in vouchers depends on the improved gas mileage as compared to your trade.  For example, if your new car purchase gets 4 mpg more than your trade you get $3,500. If the new car gets 10 mpg better than your trade you get $4,500.

Q: What if my trade-in is worth more than $4,500?

A: This program does not apply to you because you will be better off trading the car in through traditional channels. All cars that are part of the Cash for Clunkers bill we be sent to the scrapyard.

Q: I have an old clunker truck that gets under 18 mpg.  Can I trade that in for a car that gets over 22 MPG?

A: It would seem that you will be able to trade it in. We will wait on the final wording on the bill since this is a very popular question.

Q: My parents own an old clunker.  Can I transfer the title into my name and use it for a Cash for Clunkers trade-in?

A: It would seem that unless you have the car registered in your name for at least a year, the answer would be no.  Although, there may be creative ways to transfer titles.

Q:  Can I buy any new car and still qualify?  Does it have to be an American manufacturer?

A:  You can buy any new car (as of right now).

What Does Cash For Clunkers/Guzzlers Do?

What Will Cash For Clunkers Accomplish?

Prediction:

There will be zero vehicles listed on Craigslist for less than $4,500.

The Cash for Clunkers /Guzzlers will force a price increase of automobiles.  Now, the $4,500 figure may be off a bit, as there is a time-strike & decay value of all commodities and of course, a dependency on things like storage cost; speed of capital; etc.  So, this actual figure will be set by Mr. Market accordingly.  But as a Used Car is essentially the same as a chunk of lead, a bushel of corn or a barrel of oil, it will be treated as such.  And accordingly, there is now a floor under the price of cars.  [Some may disagree & say that all used cars are unique & should be treated as such - I argue differently: that a "clunker" nearly perfectly achieves commodity status.]

The result is essentially a tax increase.  A better solution may have been the tax-cut-solution given to cars getting 40+ MPG.  Toyota & Honda have seen pretty good demand increase because of zero sales tax (tried to locate a new Prius lately?).  This Government Bill (H.R. 2346) makes an attempt to remove clunkers from the road but ignores the important law of demand: those cars are on the road because consumers need/want . . . demand them.  With H.R. 2346, there is now a minimum bid on all vehicles (assuming President Obama signs it into law.)

Gaming the System?

Many an entrepreneur will look at what is essentially a government coupon & think, “Hmmm. I can capitalize on this!”  Let’s go out & buy 100 vehicles for $1,000 each.  I’ll use these as coupons to give new car buyers – let’s say for $2,000 off their purchase.  I turn around & get $4,500 from the government, implying a nice little profit of $150,000.  [Although, there may be titling fees, administrative fees, other government fees, transportation costs, salvage costs, storage costs; etc.]

This gaming of the system might actually be allowed & encouraged by the government, as it is the “salvation” of the Bill – it results in removing clunkers from the road.  One difficulty being the ability to acquire cheap cars – this will quickly evaporate, as the floor price gets set in place.

Advertising & Marketing Implications:

Cash for Clunkers is a tidy little headline & hook.  It can be used for a short while, at least, to put additional bodies on the showroom floor (or in the email basket).  This hook will quickly dull as consumers realize that it’s not necessarily a good deal, if not entirely bogus . . . and besides, they actually need to drive that clunker, since they want to be responsible consumers & not potentially get put into the position of having to default on a loan!

But kudos to Sonic Automotive for registering the url, cashforclunkers.com – interested to see the Analytics report in a month or two!  Seriously, the url isn’t all that necessary; however,  it’s certainly a marketing coup.

In the intermediate term & “long run”, it may remain an effective closing tool for dealers.  It will help to get some deals done.

Endgame.

As this story develops, we’ll come back & revise these predictions – it’s certainly evolving & there’s going to be some fascinating spin!  At the end of the day, we may have just spent $1 billion in taxpayer monies . . . and accomplished what, exactly?

What do you think?  Please respond below.

This opinion was written by Nathan Ayers. Email him at nathan@ayersads.com

A few story links:  H.R. 2346 (search HR 2346); AP Story; Bloomberg;