If the government decides to revive a Cash for Clunkers program that will give up to a $4,500 rebate for qualifying cars and trucks, owners of old vehicles will face a dilemma: Do I keep driving my car, trade it in for the rebate, or head to the scrapyard, skipping the program and its benefits?
The former Cash Allowance Rebate System (CARS) gave up to $4,500 to owners of vehicles up to 25 years old in running condition, had a combined fuel economy of less than 18 mpg, and replaced by a new vehicle getting more than 22 mpg. (Light and heavy-duty trucks had lower fuel economy thresholds).
A new Cash for Clunkers program, like the first one, would have similar rules but also may require that the new vehicle be electric. Still, there are many factors to consider if this program becomes a reality. The first is figuring out if your car qualifies and whether or not it’s worth more than the government wants to give you. The first step in doing your research is the used vehicle valuations here at Kelley Blue Book.
If you determine that the value is below the $4,500 or maximum cap on the rebate, you will have three choices: Keep the car as is, trade it in, or if it’s not running, scrap it.
If your vehicle is near the $4,500 mark and runs reasonably well, you may want to keep it. As vehicles of a similar vintage hit the scrapyard, the value of your vehicle will most likely rise. The program requires that the vehicle be running. Once turned in, the yard disables the engine and either crushes or shreds the body.
The condition of your vehicle, however, is a key consideration. If it’s properly maintained, or you recently bought new tires, had a brake job, or performed other major repairs, you’ve invested money that you won’t see a return on if the vehicle ends up scrapped. Conversely, if your car’s transmission is slipping, it’s burning oil or needs some other major repair, you’ll soon be out a lot of money to keep your car on the road. You can estimate what these potential out-of-pocket expenses will be by visiting Kelley Blue Book’s Service and Repair tool.
When facing big-ticket repairs or maintenance, you may find the $4,500 rebate attractive. But remember to check the vehicle’s value to determine what the real benefit of that money will be to you.
A vehicle worth, say, $3,800 would realize a net gain of $700. If it’s worth more, the rebate’s value decreases. If its value is less, the rebate becomes a larger factor in your decision.
This scenario also applies to expenses you may incur to ensure that your car is running when you turn it in. Also, keep in mind that the car you turn in for scrap will increase the value of similar vintage vehicles. But again, it comes down to running condition. Also, factor in how much you’ve put into the car and what you reasonably expect to get in trade-in value. Another provision that might help you make the decision is whether the new law allows you to retain the scrap value of your vehicle — that’s extra money in your pocket.
This is a fairly easy call, especially if your clunker doesn’t run. First, you need to determine what it will take to get your vehicle in running condition. It doesn’t have to run great, just good enough to get it to the vehicle collection point. Again, Kelley Blue Book’s Service and Repair tool will help you figure how much it will cost to get your vehicle back on the road.
If it’s a fairly minor fix, like a fuel pump ($300-$500) or timing belt ($350-$450) replacement, then the repair is worth the return you will get from the full rebate. However, if your vehicle needs a new transmission ($2,500-$4,500) or an engine rebuild ($4,500-$4,000), you’ll see all the benefits of the Cash for Clunkers go up in a blue cloud of oil smoke. If your clunker is in such poor condition, perhaps it’s time to call for a tow truck to haul it off to the junkyard.
More: Cash for Clunkers, Part II: Rules of the Road
