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Cash for Clunkers: 5 Secrets and 3 Smart Tips

The new "Cash for Clunkers" program starts later this week, and you've probably heard a lot about it. The only problem is, much of what you've heard is wrong.

To be sure, there are plenty of good reasons to dump an old car these days. You may want to trade up to a safer car, since few older cars have potentially lifesaving electronic stability control and side-curtain airbags. Also, it’s a ferocious buyer’s market on dealers’ lots, so unless you are a complete sucker, you should be able to drive a very handsome bargain.

However, Uncle Sam’s rebate program is not by itself a good reason to cash in your older car. The fact is, you’ll probably get a better deal by selling your clunker on your own and using that cash to buy a new car, rather than using the rebate.

The Clunker Rules

Under the federal program, formally known as the Car Allowance Rebate System (CARS), if you trade a gas guzzler with an mpg rating of 18 or less (combined city/highway) for a vehicle whose fuel economy is at least 4 mpg higher, you’ll get a government rebate to use toward the purchase. If the new car gets at least 10 mpg more than your old one, the rebate is $4,500. If the improvement is at least 4 mpg but less than 10 mpg, you can claim $3,500.

To find your old model’s mpg, the official Cash for Clunkers Web site,, will link you to the site set up by the Environmental Protection Agency and the Department of Energy. Click “Find and compare cars,” then choose a year, make, and model. Under “New EPA MPG” is a number in red; that’s the combined mileage. You can then follow the same procedure to check on the car you’re thinking of buying. If you don’t know the precise age of your car or truck, it should appear on the safety standard certification label on the frame or edge of the driver’s door in most vehicles (“2-95” means February 1995, for example).

You won’t actually get a rebate check in the mail. Instead, the dealer will take your trade, apply the credit toward your purchase price, have your clunker destroyed, and get reimbursed by the government. The program is expected to end around November 1, or whenever the government’s $1 billion rebate allotment runs out.

The Five Catches

Here are five catches you may not have heard about:

  • Your clunker must be road-ready with at least a year’s insurance history in your name.
  • It must be less than 25 years old.
  • The vehicle you buy must be new, not used.
  • If you want to lease the new car, the contract must be for at least five years.
  • The manufacturer’s suggested retail price (MSRP) of the vehicle you buy can’t exceed $45,000.

Three Smart Clunker Strategies

Here’s how to make the best use of the clunkers program.

1. Go for the rebate only if it’s more than your clunker is worth. The rebate may be too stingy to be worth your while. Many older cars have trade-in values far higher than the $3,500 and $4,500 rebate amounts. Don’t assume yours doesn’t. Even some 1999 Ford Econoline minivans (14 mpg), for example, could be worth more than $4,500 in a private sale. Kelley Blue Book or can help you determine your clunker’s value. The dealer is supposed to include your old car’s scrap value in the deal, but that’s not likely to amount to more than a few hundred dollars (minus the $50 paid to the dealer for administrative costs).

The best models to trade in for government rebates are “older cars that are not worth much and get poor gas mileage,” says Eric Evarts, associate autos editor at Consumer Reports. Examples from Consumer Reports’ list of the best gas guzzlers to junk: any pre-1998 Mercury Grand Marquis, older truck-based SUVs with V-6 or V-8 engines, four-wheel-drive Chevrolet Silverado trucks from 1997 or earlier, and pre-1998 Dodge Durangos.

2. Don’t tell the dealer about your clunker right away. It’s a buyer’s market these days, so you have a lot of leverage in the auto showroom, even without the government rebates. Tell the dealer that you’re interested only in discussing the new car purchase, and then work out the best price you can. Only then should you mention you have a clunker and that you want to have its rebate amount subtracted from the new-car price you’ve just negotiated. If you let the dealer know about your clunker immediately, he may jack up your new car’s purchase price, since he’ll know you’re getting the rebate.

3. Stack rebates on top of manufacturer discounts. You may be able to lower the new-car price even further by combining an automaker’s discounts with the government’s rebate. For a small, fuel-efficient car, the result could be a mouthwateringly low price. For instance, a 29 mpg Hyundai Accent with an MSRP of $12,670 would run just $6,670 after the $4,500 rebate and $1,500 in Hyundai discounts.

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