What is Cash for Clunkers? How to Get Cash for Your Car
  • Buying Guides

What is Cash for Clunkers? How to Get Cash for Your Car

By Autolist Staff | April 20, 2020

Amid the economic upheaval due to the COVID-19 or coronavirus pandemic, your vehicle might throw a lifeline to the auto industry. Now facing double-digit declines in first-quarter sales, automakers are proposing that the feds revive an Obama-era program that helped bolster the auto industry following 2008’s economic downturn: Cash for Clunkers. It was a program that granted car buyers cash to trade low-efficiency, gas-hungry vehicles for more fuel-efficient and low- or zero-emissions models.

If Ford and other proponents get their way, Cash for Clunkers may make a comeback to help save a faltering auto industry while putting cash back in consumers’ pockets. A new program might look similar to the one launched in 2009, so it’s helpful to look at the old Cash for Clunkers government stimulus to get a glimpse of what may be on the horizon.

Will 'Cash for Clunkers' be Revived Because of Coronavirus?

As the federal government struggles to deal with a major health crisis and massive joblessness, it remains to be seen if Cash for Clunkers 2.0 will come to fruition. But there are many in the industry who would likely push for it.

Morgan Stanley automotive anaylst Adam Jonas told Barrons that he expects a more comprehensive Cash for Clunkers-type program to be enacted this fall and that it would stretch into early 2021.

Ford has been the most vocal about its desire for a revival of Cash for Clunkers. A company representative told CNET's Roadshow that it has encouraged Congress to look at ways to stabilize the auto industry while supporting auto industry workers and customers and increasing the demand for new cars. The automaker itself has discussed a national stimulus program internally for the auto industry and current plans to involve the U.S. government in the talks.

Ray LaHood, who was Transportation Secretary in 2009 when the CARS program was rolled out, has voiced his support for a new version of the initiative in light of the toll the coronavirus outbreak has had -- and will continue to have -- on the auto industry.

Prior to the pandemic in 2019, Senator Chuck Schumer brought up the notion of a program like Cash for Clunkers. Under his suggested plan, buyers trading in gas-powered vehicles for fuel-efficient vehicles, including plug-in hybrids, fully electric, or fuel-cell vehicles, would receive from $3,000 to $5,000. If the taxpayer buying an electric vehicle hails from a lower-income tax bracket, then the government would throw in an additional $2,000.

shutterstock 34618381 (1)

How Did 'Cash for Clunkers' Work?

Cash for Clunkers was the nickname for the government’s Car Allowance Rebate System or CARS. The goal of the program was to encourage consumers to buy new cars to keep the auto industry afloat while also trading in vehicles that were bad for the environment, otherwise known as clunkers. Trading in that old gas guzzler for a fuel-efficient new vehicle garnered the consumer from $3,500 to $4,500 direct from the U.S. government. Additionally, the dealer accepting the vehicle was required to scrap it, and the scrap value gave to the vehicle’s owner. All told, the federal government spent $3 billion to clunker owners.

Which Vehicles Were Eligible for 'Cash for Clunkers?'

To be considered a clunker, the vehicle had to meet the program’s parameters. It must have been previously registered and insured for the year preceding the trade-in transaction. The vehicle could be no more than 25 years old, and the consumer must trade it in on a new car purchase or a five-year-minimum lease with a retail price no greater than $45,000 and with a fuel economy of at least 22 mpg. The clunker had to have a combined average rating of 18 mpg or less, and it had to be in drivable condition.

Did 'Cash for Clunkers Work?'

The design of Cash for Clunkers aimed to help not just the auto industry, but also the dealerships and the end consumer. In all, almost 700,000 older, inefficient vehicles were traded in under the CARS program. Morgan Stanley has estimated that the program -- which cost the U.S. government a total of $3 billion -- generated roughly $13 billion in sales.

In addition to boosting the economy and the auto industry, proponents note, those new vehicles on the road significantly reduced emissions and fuel consumption by the older models they replaced.

The program’s detractors argued it had little effect other than crunching sales for car dealers from July to October of 2009, which is the period in which the program ran. Those sales, they argue, would have happened without the program’s help or the cost to the U.S. taxpayer.

Some car enthusiasts say that it took a lot of desirable older vehicles off the road that were needed for parts or even for collectors.

Regardless, there was a sales boost. As a result, the industry rallied, and the world got rid of a lot of inefficient vehicles, replacing them with fuel-efficient cars.

How to Get Cash for My Car Now

While the auto industry waits to see if Cash for Clunkers gets a reboot, there are other incentive programs out there for consumers who are eager to get rid of their current vehicle.

  • Dealer Trade Assist: This program is offered by Ford, FCA, GM, and other automakers. The program provides up to $1,500 for trade-ins that are of a specific age and still running, provided the consumer purchases a particular model that the automaker is trying to move. The models available for purchase change from time to time, making it a good idea to check with your local dealer to see if this incentive is available on the model you’re looking to buy.

  • Deferred Payment: Banks and automakers both have a few tricks up their sleeves to encourage consumers to keep buying vehicles despite the economic downturn caused by COVID-19. Some banks, including Ally and Wells Fargo, are allowing for flexible repayment and delayed payments for new car buyers. GM is offering a 120-day payment deferral with 0% special financing on its 2019 models and some 2020 models. FCA offers deferring payments for three months on eligible late-year vehicles. And during the COVID-19 crisis, most brands are offering shoppers the option to shop for new cars online.

  • Donation Incentive: Many reputable charities will gladly accept your old clunker car, including Goodwill, Arc Vehicle Donation, and Kars4Kids. In return, you get a tax deduction. While write-offs of more than $500 are less common, the charities do usually arrange to pick up the car, and you get it out of your way with minimal hassle.

  • Cash Conquest: This reasonably new program is a dealer competition platform that’s like Trade Assist in some ways. You get a specific amount as an incentive for trading in your car. Still, you are getting a bonus that’s tied into trading it in for a competitor’s model, such as trading a Chevrolet for a Ford or a Toyota for a Nissan Find out if your dealer offers Conquest Cash when you are ready to buy.

  • Federal Tax Credits: If you buy an all-electric or plug-in hybrid car, there are still tax credits available. This credit, launched in 2010, provides a federal income tax credit of up to $7,500 for taxpayers choosing these energy-efficient models. The total amount you can receive depends on whether the vehicle is all-electric or a plug-in hybrid, and how close that automaker is to running out of its federal allotment of credits (each automaker gets 200,000).

    Notably, there are some state and local incentives like this one too. Those who don’t qualify for this may be eligible for plug-in cars through another credit from the government that provides up to $2,500 or 10 percent of the purchase price.

  • State Clunker Programs: Some states liked the Cash for Clunkers program so much that they continued their own. For example, if you are in California, and your car cannot pass the emissions test requirements, the state will pay you $1,500 for it. Check for incentives like this in your state when you’re ready to part with your old jalopy. Check with your state’s DMV to see if there are any incentive programs available.

  • Sell Privately: Remember, if you don’t want to wait for a Cash for Clunkers program to open up, you can always sell your car yourself. We have guides to walk you through this process for states like California and Florida.

    To price your clunker, look it up on NADA guides or Kelly Blue Book to get a baseline for what it’s worth based on factors such as condition and mileage, and then either hang a ‘For Sale’ sign in the window or take out an ad on your favorite classified site. Remember, if your car needs a lot of work, you can’t expect to get top dollar for it. Set your price with enough leeway for negotiating with the average used car buyer.