Buying a New Car With 'Cash for Clunkers'

The Consumer Assistance to Recycle and Save Act, commonly referred to as "Cash for clunkers," has been signed into law by President Barack Obama. But some new wrinkles in the program will mean consumers should be prepared to act quickly.

The program, formally labeled the Car Allowance Rebate System, will run from mid-July through October, and it allocates just $1 billion. The original bill had proposed a $4 billion program with a one-year time frame.

Consumers who choose to participate will receive up to $4,500 for their vehicle when they replace it with a new car or truck that gets better gas mileage. The program has been created to remove older, heavily polluting vehicles from the roads permanently by crushing them.

While the National Highway Traffic Safety Administration, or NHTSA, is tasked with preparing the final details to put the program in place, the act already explains much of how the program will work.

The first step for consumers is to determine if they own a clunker. To qualify, the car, SUV or light-duty truck must be manufactured in 1984 or later and owned, insured and operated by the consumer continuously for at least one year. In other words, consumers won't be able to buy junkers now to take advantage of the program.

In addition, qualifying passenger cars must get 18 miles per gallon or less city/highway combined mileage as determined by EPA estimates; small light-duty trucks, including some SUVs and minivans, must get 16 mpg or less; and large light-duty trucks and vans weighing 6,000 pounds to 8,500 pounds must have a mileage of 14 mpg or less.

The NHTSA told us that a complete list of qualifying vehicles will be posted on the government's Car Allowance Rebate System Web site shortly.

On the other side of the deal, the replacement vehicle must get a combined fuel economy of at least 22 mpg for passenger cars; 18 mpg for SUVs, minivans and small pickups; and at least 15 mpg for large light-duty trucks and vans.

Consumers will receive $3,500 toward the purchase of a new vehicle:

• If the new vehicle gets at least 4 mpg more than the old vehicle and if the old vehicle is a passenger car.
• If the new vehicle gets 2 mpg more than the old vehicle and if it's an SUV, minivan or small pickup.
• If the new vehicle gets 1 mpg more than the old vehicle and if it's a large light-duty truck.

Consumers will receive $4,500 toward the purchase of a new vehicle:

• If the new vehicle gets at least 10 mpg more than the old vehicle and if the old vehicle is a passenger car.
• If the new vehicle gets 5 mpg more than the old vehicle and if it's an SUV, minivan or small pickup.
• If the new vehicle gets 2 mpg more than the old vehicle and if it's a large light-duty truck.

The discounts will be available only toward the purchase of a new, not used, vehicle and can be combined with rebates and incentives offered by the manufacturer. All those deals could result in a tremendous discount on the new vehicle. However, consumers won't see the cash for their clunker. Instead the dealer who is selling the new vehicle will receive the money from the government as it sends the old car off to be crushed.

It will be interesting to see if dealers decide to count the government money as a down payment for the consumer.