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One Lemon Of a Law

By Michelle Singletary
Sunday, July 19, 2009

If you have a clunker that's also a gas guzzler, the federal government wants you to trade in the car so it can be scrapped -- while you get a cash credit toward the purchase of a new, more fuel-efficient vehicle.

The Consumer Assistance to Recycle and Save Act of 2009, or CARS, was pushed through Congress and signed by President Obama, purportedly to cut down on harmful vehicle emissions.

But in truth, this is welfare for the limping auto industry.

The National Highway Traffic Safety Administration (NHTSA) has been given $1 billion to fund the program. But the law does not apply to the purchase of used cars, encourages people to take on more debt and doesn't require the new cars to get substantially better gas mileage.

Oh, well -- no use crying over soon-to-be-unwisely-spent taxpayer money.

So if you were thinking of trading in your aging car, here's your chance to get some government money. But before you rush to a dealer, you need to know about the program's details.

Specifically, CARS -- dubbed "Cash for Clunkers" -- provides $3,500 or $4,500 to help people buy a more fuel-efficient car, van, sport-utility vehicle or pickup from a participating dealer when they trade in an older, less fuel-efficient vehicle. Which amount you get depends on the type of car you buy and the difference in fuel economy between the one you're buying and the trade-in.

To qualify for the program, your trade-in must meet, among other things, the following conditions:

-- The vehicle must be drivable.

-- It has to have been continuously insured and registered to you for one year before the trade-in. This provision was put in the law so no one would buy a junkyard car to try to get the cash credit.

-- It must have a "new" combined city and highway fuel economy rating of 18 miles per gallon or less. That word "new" is important here. To find out the new mpg standard, go to http://www.fueleconomy.gov/feg/sbs.htm. Click on the year of your car, the make and then the model. You will see a red banner with "Estimated New EPA MPG." Under it will be the new combined city and highway fuel economy for your vehicle.

For an overview of the cash-for-cars program, go to the official government Web site, http://www.cars.gov, or call 866-227-7891. While you wait for NHTSA to publicize the complete guidelines (the agency has until Friday), you'll find useful information at http://www.edmunds.com and http://www.kbb.com. Look for Cash for Clunkers links on the home pages for both Web sites.

There are some other things you should know about this new law:

-- If you've already traded in a vehicle and would have qualified for the program, too bad -- you don't get to put your hands in the federal cookie jar. The program only applies to new vehicles bought July 1 to Nov. 1.

-- The manufacturer's suggested retail price cannot exceed $45,000.

-- You will not receive money directly from the government. The dealer will apply the qualifying credit toward the purchase price and then apply to NHTSA for reimbursement. NHTSA is setting up a system to register dealers.

-- Under the law, participating dealers have to offer the credit in addition to any rebates or discounts offered.

-- Dealers are prohibited from charging a fee to participate in the program.

-- You may trade in or buy either a domestic or a foreign vehicle.

-- When you trade in your gas guzzler, the dealer is required to destroy it. Under this program, your trade-in is worth only the scrap value. You do not get a trade-in allowance. Clearly, if the value of your trade-in is worth more than the qualifying cash credit, it may not be worth participating.

-- Concerned about the tax implication? Don't be. The law specifically says the cash credit will not be treated as income. It is, however, considered income for the dealer. Additionally, using this credit doesn't negate using other state and federal tax incentives geared toward fuel-efficient vehicles. For example, you can use it and still get the federal tax credit for purchasing a hybrid. (For more information on the tax credit, go to http://www.fueleconomy.gov/Feg/tax_hybrid.shtml.)

As for the more-fuel-efficient requirement, new passenger automobiles must have a combined fuel economy value of at least 22 miles per gallon. For certain new trucks and sport-utility vehicles, the combined fuel economy value has to be at least 18 mpg. Some other trucks need to get only 15 mpg.

And, as if the program weren't flawed enough, unfortunately consumers can use the credit toward leasing a new vehicle provided the lease period is at least five years.

Oh, goody: Our federal government has now given people an incentive to stay in a cycle of car debt.

-- By mail: Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

-- By e-mail: singletarym@washpost.com.

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