Cashing In That Clunker Is No Easy Ride

By JOSEPH B. WHITE
Caveat clunker.
The government’s cash-for-clunkers program appears to be reviving the moribund car market. But even with Uncle Sam providing the trade-in allowance on junky old gas guzzlers, consumers still have to shop aggressively. And the program’s complicated rules can be an obstacle.
A case in point: The list of clunkers eligible for $3,500 or $4,500 government vouchers just got changed by the Environmental Protection Agency.
The EPA reviewed its mileage ratings for about 30,000 different models, to comply with a requirement in the cash-for-clunkers legislation that miles-per-gallon ratings be accurate up to four decimal places, the EPA said in a statement Wednesday. That review coincided with the National Highway Traffic Safety Administration’s efforts to produce a 136-page-long rulebook for the cash-for-clunkers program. The EPA review resulted in 86 models being reclassified as eligible for the scrapping program—with combined city/highway mileage of 18 miles per gallon or less—that hadn’t appeared to be eligible when consumers searched the agency’s fueleconomy.gov Web site before last weekend. But 78 models that appeared to be eligible no longer will qualify, because their new mileage ratings exceed the 18 mpg threshold, the EPA said.

Among the newly eligible vehicles: The 1989 Ford Taurus and Mercury Sable wagons and the 1993 Acura Legend. Among the vehicles no longer eligible: the 1991 Toyota Camry and Camry wagon and the 1987 Lincoln Town Car.
The EPA characterized its review of the mileage calculations for more than 30,000 vehicle models as a “monthlong quality assurance and quality control effort.” Consumers who expected deals earlier this month believing that their old cars were eligible for the government’s scrapping allowances—only to discover that the new EPA figures cut them out—might not use such neutral terms.
So there’s Caveat No. 1: You must be certain that your vehicle qualifies for the program. The EPA says combined city/highway mileage of your “clunker” has to be 18 miles per gallon or less. Look it up on www.fueleconomy.gov. The car must be “drivable,” and it has to have been registered and insured by the same person for one year.
Caveat No. 2: The government clunker voucher isn’t a “rebate” from the manufacturer or the dealer. It’s a substitute for the trade-in value of your car. If your vehicle is worth more than $4,500—the maximum allowance under the federal plan—you should trade the vehicle in as usual, or sell it on your own. Check the used value of your vehicle at www.nadaguides.com or one of the major consumer shopping sites.
Under the NHTSA rules, the dealer is obligated to disable any vehicles turned in for a federal scrapping voucher by putting sodium silicate in the engine. (Think sugar in the gas tank. Except nastier.) Then the vehicle goes to a junkyard.
You, meanwhile, will negotiate the purchase price of a new vehicle knowing that the dealer is getting $3,500 or $4,500 from the federal Treasury to reduce the purchase price you pay. But the dealer may also have discounts from the manufacturer in hand that can lower the price still more, and the margin between the window sticker price and the “invoice” price is still there. Chrysler LLC, for example, is trumpeting that it will discount vehicles up to $4,500 on top of the clunker allowance. Most other manufacturers have less generous discount offers or lease deals in the market. In short, bargain hard, as always.
Caveat No. 3: Financing for a new vehicle could be tricky if the individual involved has credit issues. Still, dealers say they are able to work out deals because the clunker money functions as a customer’s down payment.
“We have seen a lot of cases where people have never bought a new car. They can get a loan because there’s equity in the deal” in the form of the government voucher, says John McEleney, chairman of the National Automobile Dealers Association and a multifranchise retailer based in Clinton, Iowa.
Caveat No. 4: If you want in on the clunker program, consider moving soon. Inventories of unsold vehicles are as low as they have been in years, following months of production cuts by the major auto makers. All signs point to a renewed effort by auto makers to raise prices—either by scaling back discounts, raising sticker prices or both.
“For once it’s true, you’ll never get a better price than right now,” says Mike Jackson , chief executive officer of AutoNation Inc., the No. 1 U.S. auto-dealership chain. It’s early days for the clunker program, Mr. Jackson says, but the strong early response suggests the government effectively has given permission for consumers to go car shopping—even those who don’t plan to trade a clunker for a tax-funded voucher. If there is a sustained sales bounce, pickings at the major brands could get thin.
The government has $1 billion worth of vouchers to hand out, good for about 250,000 vehicles. But that’s only about a week’s worth of U.S. new vehicle sales. The chances look good that the money will run out before the scheduled Nov. 1 end date for the program. You can roll the dice on whether Congress will add more to keep the party rolling. But that clapped-out 1998 Ford Explorer may not have a more eager buyer than President Barack Obama is right now.— Write to Joseph B. White at joseph.white@wsj.com