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'Cash for clunkers' law has catches

After President Barack Obama signed the Car Allowance Rebate System into effect — it's commonly called the "cash for clunkers" law — he set the wheels in motion for one of two things to happen, depending on whom you talk to: The law is either a needed shot in the arm for the retail auto industry, or a boondoggle that will cost taxpayers millions.

There is one thing no one can dispute: There is bound to be confusion. Example: To qualify for a $3,500 or $4,500 taxpayer-financed "voucher" to apply to the cost of a new vehicle, your old car must be EPA-rated at an overall 18 miles per gallon or less. Supposing your "clunker" is a 1987 Chevrolet Caprice: That vehicle was available with four different engines and two different transmissions. A Caprice with a 4.3-liter V-6 and a three-speed automatic transmission is rated at 18 mpg, so it qualifies. If the car has the same engine and a four-speed automatic transmission, it is rated at 19 mpg, and doesn't. If it has a 305-cubic-inch V-8 engine, it qualifies. If the V-8 engine is 307 cubic inches, it doesn't.

According to the automotive information Web site Edmunds.com, a 1987 Chevrolet Caprice with the V-6 engine in average condition is worth about $149 in trade-in value. If that car has the three-speed automatic transmission, it is eligible for as much as $4,500 toward a new car. With the four-speed transmission, it's worth $149.

Some early versions of the law made provisions for two details that many legislators thought were important: The vouchers would also work toward trading your vehicle in on a gas-sipping used car, and the vouchers would apply only to vehicles traded in on a made-in-America car. Neither of those provisions made the final draft.

By applying the law only to new vehicles, critics argue that financially strapped buyers will be tempted to buy a new vehicle even though they can only afford a used one. And used-car dealers argue that the market for 1- or 2-year-old used vehicles could plummet, since there will be a $3,500 or $4,500 cash incentive to buy a new vehicle, and no incentive to buy a used one.

And by making the law apply to imported vehicles as well as domestics, other critics argue that a central point of the measure — to keep American factories working — has been compromised.

Predicting the ultimate impact of the new law is difficult; some analysts expect a minor bump in sales, while others are more optimistic.

"Our recent estimates indicate nearly 1 million additional vehicles would be sold in the U.S. in 2009," said Lonnie Miller, director of industry analysis for R.L. Polk and Co., an industry data provider. If true, that would represent a 10 percent boost in overall sales.

Others are less optimistic. "Similar legislation has seen success in Europe because European new vehicle buyers keep their vehicle considerably longer than those in the U.S.," said Jeremy Anwyl, chief executive of Edmunds.com. "But in the end, this is a nonevent. Even 250,000 new vehicles' sales will not provide the impact needed for an industry looking for at least 5 million in additional sales."

"It's a very poorly conceived piece of legislation that will neither significantly reduce our country's carbon footprint nor do anything to substantially spur new car sales," said Edmunds.com editor Karl Brauer. "The only thing more ineffective than this bill is the government's response to sagging car sales, which are really taking their toll on the overall economy."

The law is good from July 1 to Nov. 1, through the National Highway Traffic Safety Administration, which will carry out the measure. If the $950 million appropriated for the program runs out before Nov. 1, the program would end prematurely unless extended by law.

For a relatively small percentage of the buying public that owns an appropriate clunker and needs a new car — and has the means to pay for it — the "cash for clunkers" law could be the answer to a prayer.

For the rest of us — yawn.

'Cash for clunkers' law has catches 07/30/09 [Last modified: Thursday, July 30, 2009 5:01pm]
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