Cash for Clunkers

OK. Let me get this straight. I can get $4500 toward a new car as long as my old car gets terrible gas mileage. Well, I’ve got a 1996 Civic, which gets 30-something MPG. But it’s worth less than $4500. So I guess I should sell it for what it’s worth ($2-3000) maybe, buy a total piece of shit for as cheap as possible, and then exchange that for $4500 off a new car? I’d be several grand ahead. Of course, most of the models of new car I’ve got my eye on get worse mileage than a 1996 Civic. So if this plan induced me to buy a new car when I wasn’t going to, which it might, and I get the kind of car I think want, taxpayers will have paid me $4500 to drive a nicer but less fuel efficient car than I’ve got. Thanks democracy!

Or maybe I should just buy a clunker, get the trade-in, then instantly sell the brand new car for $2000 off sticker and pocket the rest. Anyway, better move quick. Lemons go fast when everybody’s thirsty for lemonade.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center

77 thoughts

  1. Well, when would the program go into effect, should it be made law. And how long will it last? Will it be in effect a year from now-ish, is the real question, then.

  2. If what I read this morning was correct, the clunker being traded in must be shredded or otherwise disposed of, not resold. So under either of your scenarios, the stated goals of the program have been met. (The average fuel efficiency of all cars on the road has been increased, the automobile industry has been stimulated by the purchase of a new car.) I'm not necessarily defending the program, but your examples do seem to achieve the goals the legislation had in mind.

  3. Will. Why so little faith in the market? The $4,500 'cash for clunkers' program has just placed a price floor beneath all those 'cheap pieces of shit'. Given the magic of the invisible hand, you won't be able to buy that car for its current worth — a few hundred dollars, say — once the program is in place. My guess is that the 'price of clunkers' is currently way under what a rational judgement would assess 'em at. There has to be some risk discount. The program might not materialize, after all. But let's say there's a 50% chance of it. Then the current price of those clunkers ought to be about; price_pre_program_announcement + 0.5 * ( $4500 – price_pre_program_announcement). Of course, this price also needs to be discounted slightly to account for the depreciation of inventory, cost of capital, etc. But yeah. We should absolutely float a hedge fund that buys up clunkers cheap and then resells 'em for (say) $4,000 a pop to people who want to take advantage of the program but lack the access to capital. Unless, of course, you don't actually believe in homo economicus.

  4. And if you have already bought a new fuel-efficient car, and you have taken the new car value hit when you drove off the lot, you can console yourself knowing your tax dollars will help that neighbor with the Suburban and the Hummer sell his extra Cadillac to buy a Prius! That should make you feel like a real patriot! (Chump!)

  5. Your 1996 Civic does not get 30+ mpg unless you're only driving downhill with a serious tailwind.

  6. What is the max IQ allowed in congress?Taxi drivers burn the most fuel per day (Gallons per day) GPD counts more than MPGany incentive or law to change taxis to the most efficient car available would result in maximum fuel saving nationwide. Used taxis are sold to lower income drivers who a $5000 check wont make them buy a new car anyway

  7. Didn't something similar to this happen on a much large scale with the paper making industry. I vaguely recall reading that they put in some “make your business greener by using less diesel!” subsidy, and some smart ass consultant told the paper companies to add diesel to their process (even though unnecessary) and then slightly reduce the diesel each year to qualify for the millions in subsidies.

  8. What *really* chaps my hide on this is for an administration who is supposed to be so much in favor of “the little guy”, this is a direct transfer of wealth from the lower classes to the upper class. I’m a lower-middle class guy, and I have never purchased a new car. Tax dollars from my wallet will flow uphill to an orthodontist so he can upgrade his two-year old car to something right off the lot, while I drive my ten year old Taurus. And any wealthy family with a minivan and a car can just trade in the minivan for a new car (for the discount), while trading in the car for a new minivan (with no discount).I have a great idea. Cut taxes so I’m not paying Washington so much, and I’ll buy my own dammed car.

  9. That's sort of what happened. What happened is that you got a credit for “mixing biofuels in your petroleum diesel,” and paper companies, who had previously just recycled biofuel by-products in their plants, were able to qualify for the credit only by adding a small amount of petroleum diesel to their fuel.

  10. lroark – Lana Roark is the Co-founder of Cars4Charities,, a not for profit car donation center that represents over 1,000 respected charities across the United States. Call 866.448.3487 or go to
    kcampese says:

    60% the cars that are currently donated to charity will now be eligible for a $3500 or $4500 voucher under the cash for clunkers program. Since the tax deduction for donating a car is only $500 or what the car sells charities won't be able to compete with the program and charitable car donation will end. A better idea is to just change the amount a person can deduct for donating their car back to the book value. That way every car is eligible, the government doesn't have to spend $4 million of our dollars giving away vouchers and trying to administer a program that is way too convoluted!

  11. Hey Georg – a 2 year old yugo is worth more than $4500, this program is for 10 year old cars that are worth less than $3000 in trade that you have owned for over a year and drive (as evidenced by insurance).

  12. Part of the bill requires that you show proof that the clunker has been registered for at least a year in order to get the credit. The engine and the transmission must be destroyed and the rest of the parts can be sold. There will also be a minimum improvement in the mileage to qualify. If you are getting 33 mpg you probably cant buy anything other than a prius to qualify for the program.

  13. This is not really much benefit. Since the vehicles being traded in are being scrapped – the only value is the govt credit. So if you have a vehicle that is actually worth $3000 trade in today and you can get the $3500 credit when the program is in place you will only benefit by $500. It is not like they will give you the $3000 your vehicle is worth plus the $3500 credit since they cannot sell the vehicle. Will only work for vehicles that are next to worthless already.

  14. Assuming the very best possible scenario one might approach the lower 30's highway but anyone who has actually purchased a car is quite familiar with the attending MPG disclaimers. Even so getting 33 highway isn't the same as getting 30+ overall, not even close. Unless Will is a hyper miler he isn't getting that number. Relevant because in this post he fudges the facts as necessary to massage his point. Its truthy….

  15. Like Will, I own a mid '90's four cyclinder car, which I bought new (a Subaru Legacy) . We must have a four wheel drive for my wife to get to the hospital at all hours in the winter. Because we chose the most fuel efficient car we could for environmental reasons when we could have bought a Land Cruiser or Yukon, we are now not eligible for a tax credit. In effect, we are being forced to pay for a congressional reward program for those who acted irresponsibly in the past.

  16. #1 You have to have the car registered for one year in your name before you trade it in.#2 The newer car must be better gas mileage.#3 Changes are being proposed to make the bill only apply to clunkers that get under 18mpg combined. So your Civic, regardless of age or how long you've owned it, would not qualify if these additions get finalized. But thanks for jumping the gun and posting untruth rants about the internet…

  17. Question/Idea. The bill is not law yet. Assuming it will be become law soon and in effect for 1 year after that. Buy a clunker now (before it is law) and insure, register, and drive it for 1 year. Trade it in in 1 year while there is still time. Any flaws in this?

  18. I could work, but here are the risks:1. The law doesn't ultimately pass.2. It passes, but it is changed in the process and the vehicle you thought would count as a clunker no longer doesBut the biggest worry is:3. The plan is only in effect until the funding runs out. By some estimates, there will be demand enough for $4 billion worth of vouchers. But the original funding they've discussed so far is only for $1B. They say they hope to add more money later in the year, but is that a chance you want to take? Even if they do, if you have to wait a full year, you'll be one of the last to try and cash in. Even the $4B amount could run out if demand is a little more than they expect.

  19. I can't speak specifically for a 1996 Civic, but…I have a 2001 Chevy Prizm (Corolla clone), a similar sized car to the Civic. According the the new way the EPA calculates mileage, my car is rated at 30 mpg overall with my 4 speed auto transmission. In over 130,000+ miles, I've never once had a tankful that got less than 30 mpg. Granted, I've probably never had a tankful that was 100% city driving, there is always some highway because my commute is largely highway. But it's rush hour, and there is traffic, and the car is only warming up for half the trip, so it's not as if every tank is optimal conditions either.A 1996 Civic is rated at 28 mpg overall, only 2 mpg less than my car. That being the case, I don't find it at all hard to believe that he averages 30 mpg overall.

  20. You'd have to be nuts to trade a 2 year old car in for only $4500. It's trade in value would be far greater than that.

  21. No, sorry to say the Buick Lesabre isn't eligible because the gas mileage is too high.If you want to check your vehicle's gas mileage, the government has a free site where you can plug in your year, make and model to get your car's info. It is at: you want to follow the latest news on the Cash for Clunkers legislation, I found a site that lets you sign up for an alert and also has the latest news info. It is at:

  22. I might be a typical participant in the plan. I have a 1985 Chevy that gets 18 mpg combined. I've been trying to get rid of it but emotions and frugality prevent from “pulling the trigger” on the old beast. I would use the govt program to buy a nice new Hyundai Elantra or maybe a Kia Spectra, and I believe I would qualify for the $4,500.But it's not a green deal environmentally. Lots of pollution had to be created to make the new Hyuundai or Kia. Now that I buy one, another one has to be created, causing more pollution. And the bill will not allow my old Chevy to be resold, or reused by anyone in any way. It will be dumped in a landfill, after the engine and trans have been certified destroyed. Not frugal. Wasteful, and polluting, actually.

  23. one version of this proposal has an income limit of $25,000 for individual ($40,000 joint/household). you have to have owned the vehicle as of 12/1/2008 for it to qualify.

  24. hope it gets through. me middle class, driving 24 year old delta 88, 150K miles, tired,wore, not collectable,not a classic. by new e.p.a.estimates with its 307 cid/4bbl and 4spd auto tranny. it averages 18 mpg's. just barely qualifies on all counts. only bummer is new V8 mustangs (my preference) get an average of 16mpg's, so no clunker coin for that vehicle. but a nice ford focus for a commuter will do just fine for around 10K after clunker discount. I do have a 1988 f-250 2wd 7.5 (460) 3 spd auto truck 139K miles, maybe averages 9 or 10 mpg's rusty but reals strong, that I think will qualify for the stang at the lesser 3.5K amt. maybe next year if there is still $$ left in the clunker program. neither vehicle worth anywhere near the $4,500. voucher amt. I like many would be thrilled for this bill to pass. TOM.

  25. Am looking forward to this bill with great interest! I plan to trade my 4 cylinder Chevy (very gutless) S-10 for a new F150 under it!Here's how it will work. I also own a 1985 F-250 that I keep at the lake. I only drive this puppy about 50-100 miles a year to tow the boat to the landing and make a couple of trips to the town dump. I will trade the F-250 for a new F150 and promote the S-10 to lake duty!Let's hear it for Hope and Change!

  26. FUCK peopple. are you all stupid. People aren't going to trade in their cars thbey got two years ago, they would get more than 4500 without the program you dips. Plus if any of you actually paid attention to the bill it states that you must have owned and had the car registered for up to a whole year AND THE CAR MUST GET 18 MPG OR LESS to QUALIFY so its not like rich people can exactly take advantage of this. I don't have shit for money but i do have a 93 caprice that averages 18 mpg so i qualify and i'm not rich so kiss my ass

  27. Great…now a bunch of people who wouldn't normally qualify for a new car loan are getting a “boost” from the government. Does this sound familiar? Next year, when they can't make the car payments, we'll be hearing about a fuel-effecient car shopper bailout. Cut it out, please.

  28. not in that boat kelly, I choose to keep and drive my cars longer than most cuz I can. I can work on them and take good care of them and like some people, choose to be debt free. I support a family of 4 and have recently paid our mortgage in full. bring on the clunker $$$ it will get me to the dealer for 2 vehicles if allowable. maybe the kick this economy needs.

  29. That depends on the model of Civic. A 1996 Civic HX will get at least 30mpg city according to My car often gets much better mileage than what that site says it should and depending on his driving habits, he may very well be getting 30+ overall.But the exact mileage that his old Civic is getting isn't the point. This legislation is just another way for people to weasel more money out of the Feds. The people that can only afford to drive these 'clunkers' probably won't be able to buy a new car anyway. It also doesn't address the 'clunkers' that get 19mpg or better.

  30. I hate to break it to you, but if you're a lower middle class guy, you're paying very little in income taxes to the Feds. (I know where you're coming from though. I used to be in that position and always got everything back that I paid in over the year. Now, as a divorced professional, I'm lucky to get to spend 1/3 of my income after the Feds and ex-wife take their 'fair' share.. 🙁 )Also, anyone who would trade in a two year old car for $4500 either has a cheap piece of crap in horrible condition or is an absolute idiot.

  31. Financing a vehicle right now is very tough. Banks have pulled back on lending money for automobiles. I believe that most people driving “clunkers” have poor credit. That is why they are driving what they are driving. These people will not quailfy for the financing of a new 2009 vehicle.

  32. The truth is. When you trade your car in it affects the price of the new purchase from the dealer. If Car manufacturers know you were being “given” $4500 how long do you think before prices would go up to reflect this win fall. How about the car companies making a decent car for under $8000? So car buyers don’t car payments the size of some mortgage payments or five, six, seven loan terms. Face it many of these cars have issues after three years. There was a time not long ago they did. Make them smaller and cheaper. Sell more for a smaller margin. Go electric for under $8000. China has one, India has several. The smart car is available in an all electric outside the country. The Norwegian company that made Ford's EV does it. $4500 towards the purchase of a $21000 car, what bargain is that (reeking of sarcasm). And who's going to pay for it in the end? You, me, our kids or if you’re a real pessimist our grandkids?How about the government give us all $50, 000 I’m sure that would stimulate the economy on a grass roots level and cost less than all the pork barrel in the stimulus package.

  33. This sucks big time. The EPA combined rating for my 1992 Pontiac Bonneville is 19 MPG. It's so old now it gets 17 MPG at best. They make it easy for all the SUV's and Trucks to qualify, just about all of them get less than 18 MPG. What really gripes me the most, is that I qualify with my actual gas mileage, but the EPA rating disqualifies me.

  34. ok so environmentalists don't want us to keep driving our gas guzzlers, but they don't want us to scrap them either, because that's a waste, too. So maybe we should get a credit for selling them to people who promise to not to scrap them, but promise not to drive them either. Just let them sit in the garage. Wait, that's no good, 'cause then they'd last forever!

  35. I agree with you seesaw.The SUV/truck owner can easily qualify for the $3500-4500.I have a 10 year old car that is rated at 20 mpg and need to purchase a new car.Not only do I not qualify for the program but dealers will have little interest in offering incentives to meet my needs as long as this program is in effect.Frustrating to know that those that were not fuel effecient in the past are now being rewarded for their actions.

  36. I also have a 12 year old car that gets a combine mpg of 20 that will not qualify, I wish they would have left the mpg average of your trade in out of the bill, and went by increased mpg of the new vehicle over your trade in, maybe starting at 5 mpg increase and the higher the increase of mpg the more you would receive in incentive money. Just a thought.

  37. DOUBLJDOG,Sorry your plan to use the F250 lake truck as the trade in will not work. Unless you had it insured for the past year.And did you see how much the mpg has to increase to buy a new truck under the plan. It isn't just 2 mpg.

  38. A great idea whose time has come. However, who wants to add three years of monthly payments in this economy? I did a cost benefit analysis and the numbers do not add up for me.

  39. lroark – Lana Roark is the Co-founder of Cars4Charities,, a not for profit car donation center that represents over 1,000 respected charities across the United States. Call 866.448.3487 or go to
    karenc says:

    This bill would put every charity car donation program in the nation out of business since the amount of the voucher would be much greater than the tax deduction. The solution is to simply increase the tax deduction for a charitable car donation.

  40. That's a great suggestion. However, with the current state of the economy do you think that an increase in the tax deduction for a car donation is the most important item before congress right now?

  41. Isn't there always a law of unintended consequence? I wonder – did no one debate the effect this would have on donated vehicles for charity? Our representatives missed that one. This will benefit me – I've been holding on to a 95 4 runner that gets used daily but only about a mile a day. It is worth about $1000 – (maybe) and gets 18mpg according to the data. I plan to trade it in for a fuel sipper, that will become my traveling car. Then I plan to sell my current traveling car, whose value has to be at least $4500 no matter what right. After the money runs out, there will still be a lot of cheap 4 wheel drives. I will probably buy another just to get me up and down a short bad road in the winter when I need it. I guess it stimulates the economy, it will help me get a new car. The road to hell really is paved with good intentions isn't it? It would probably be better to spend money on converting taxi and 18 wheeler fleets to Natural Gas and to build more light rail transportation but that probably makes too much sense. Now on the other hand – there are incentives to be had at some dealerships – 1000-2000 dollars, plus lower finance rates. Once the cash for clunkers finally gets here, I'm betting that the incentives and the cheap money dry up – making it doubtful that I will really be coming out that much ahead. Sigh… TANSTAAFL baby.

  42. The best idea i've read here is to get the cash if you can improve your fuel economy by 10 mpg regardless of what your clunker is right now.

  43. The Cars For Clunkers legislation is actually very focused and is only available for a limited four month time frame. It offers participants the opportunity to trade in certain older cars for certain other new ones. Unfortunately, many cars do not qualify for the program and therefore are still ideal for the 'traditional' car donor option. Such non-qualifying cars let people give their cars to non-profit organizations who help people with many different kinds of needs, like supporting youth organizations or our older folks or to help promote the arts and health research.Help yourself with the Cash for Clunkers program if you qualify or if you don't qualify or would like to help others, give your “clunker” to charity and take a tax write-off!Here are 400 not-for-profit organizations that can always benefit from your 'clunker' or unneeded vehicle. To donate your car, just click on the link to the charity on the web pages below.

  44. I think blogger is uninformed. almost 100% of clunker is recyclable. the steel is sold and reused. thats the bulk of the clunker. personnally I dont think this bill stretches far enough (25 years) or 18 mpg's or worse dont include many clunkers these days unless its a truck. most negative comments I read I bet come from those who dont have a qualifying car or if they do it is worth more than the rebate amt. cant blame them for those thoughts.

  45. Now that the president has signed the bill (yesterday) we are in business!.. NHTSA now has 30 days to make the rules, Dealers have to be Qualified for participation and the puchases have to be made by November 1.Nothing like a little pressure to make a bureaucrat squirm!Follow the action at: have my local salesman, Rafi, at my local Chevy dealer here in Bloomington primed to find me a qualified vehicle. – bare bones truck with a full size bed. Now I have to get a Ford dealer on the stick so they can start bidding against each other.Thanks to all you taxpayers for pledging $4,500 to my truck upgrade!

  46. My biggest problem with the program is that we shouldn't be encouraging people who are typically trading in the clunkers to go further into debt by financing a brand new car. Typically the people who would be trading in an older car would be much better served by getting a newer car that's a couple years old, rather than a new car that will lose so much value just after driving it off the lot.

  47. Mr. Pasch's business created that site–he didn't “find” it. That said, it isn't a bad source of information. Full disclosure would be better, though.

  48. Not everyone agree on the idea of selling the clunker for cash just because it has a terrible gas mileage. buying a new car could give one another debt, well not unless one buys a second hand car with nice mileage and keep the remaining money from yourself.

  49. but if everyone is driving new, economical cars how will elitist lefty prius drivers be able to look down their nose at people? this seems counterproductive to any long term goals of looking down on the unwashed, un-green people.

  50. I just want to know where all the money is coming from when we are already in a recession. Put the money into our education system not this stupid bullshit waste of taxpayers money !!!!!! THIS PISSES ME OFF.

  51. Mpg ratings aren't always accurate anyways, my audi is only rated @ 19 combined and I average between 29 and 34mpg, if you go by tank size and miles driven, this is mostly city driving.

  52. Cash For Clunkers has been over for over a week now, but only around 120,000 rebates have been processed so far. That means $500 million of the CARS program’s $3 billion has been spent, leaving dealers holding the tab on $2.5 billion in clunker deals.masini de inchiriat

  53. not really much benefit. Since the vehicles being traded in are being scrapped – the only value is the govt credit. So if you have a vehicle that is actually worth $3000 trade in today and you can get the $3500 credit when the program is in place you will only benefit by $500. It is not like they will give you the $3000 your vehicle is worth plus the $3500 credit since they cannot sell the vehicle. Will only work for vehicles that are next to worthless already.Car Accident Claims

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