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More reasons to ditch the gas guzzler

Tess Vigeland Jun 26, 2009
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Logo of the Cash For Clunkers Program cashforclunkersfacts.com

More reasons to ditch the gas guzzler

Tess Vigeland Jun 26, 2009
Logo of the Cash For Clunkers Program cashforclunkersfacts.com
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TEXT OF INTERVIEW

TESS VIGELAND: I’ve got a question for all you car junkies out there: Just how good is that new car smell? Good enough to buy one? Well now you have another incentive.

A new law known as Cash for Clunkers will allow car owners to trade in their gas guzzler.
And quicker than you can say Buick Skylark, turn it into $4,500.

Lots of details involved, here, So we took a little road trip to a nearby Ford dealership for a visit with our friend from Edmunds.com.

Phil Reed, welcome back to the program. Nice to see you here Santa Monica.

Phil Reed: Good to see you Tess.

Vigeland: Let’s talk a little bit about some of the details of the Cash for Clunkers program that’s just been passed by Congress. How do we define a clunker?

Reed: A clunker is any car that gets 18 miles per gallon or less and was built after 1984. And the idea is, we’re going to take older, polluting cars off the road and replace them with new, cleaner burning cars.

Vigeland: How does it actually work? Is this something where you will get a check from the government to take to the dealership or do you walk in and they just lop that right off of the new car value?

Reed: First of all, let me tell you, people are so excited about this law. They are thinking of every way to slice and dice this and every possibility of how it could be used. But essentially what it is the dealer gets an electronic transfer of funds that would be credited as a trade in, as all or part of the trade-in. Because the whole idea of this program is that it inflates the value of vehicles that may only be worth $200, $300, $400 and gives a guaranteed trade-in value of $4,500.

Vigeland: What cars are eligible for purchase under this program?

Reed: OK, the way that the law is set up, it has to be 10 miles per gallon improvement to get the $4,500. If it’s a lesser improvement, it’s $3,500.

Vigeland: Improvement over the current mileage of your car.

Reed: Correct. So in other words, if you go from a car that has 17 miles per galloon and you’re able to find a car that improves it by 10 miles per gallon or more, then you get the $4,500 Cash for Clunkers rebate.

Vigeland: And could this be on a new or used car?

Reed: No, it’s only new cars.

Vigeland: Only new cars.

Reed: Right.

Vigeland: Now, there is another incentive out there that’s known as the Car Tax Deduction. Can you explain what that is?

Reed: Well when you buy a car, a big part of the purchase is the sales tax. Here in California the sales tax is 9 percent. So it’s $900 per $10,000 of car that you purchase. So in other words, an average car is let’s say $20,000, that would be $1,800 right there in sales tax. So the $1,900 would be tax deductible at the end of the year.

Vigeland: And that’s a separate law from the Cash for Clunkers?

Reed: Yes, that’s separate, non-exclusive. Cash for Clunkers can be combined with incentives, but there are no other restrictions with it.

Vigeland: Well so that’s if you got sales tax in your state, what if, for example, you live in Oregon, where there’s no sales tax?

Reed: Right. Well the government has decided that there needs to be some sort of incentive for people in those states and there are a number of states around the country that don’t have sales tax. And according to the language of the IRS — it’s slightly interpretable — but it’s the purchase prices, which often are tied to the sales price, because it incentivizes. In other words, the higher the price of the car, the more sales tax, the bigger the deduction. And it would be a similar thing for states that don’t have that.

Vigeland: At some point you have to assume the dealership is going to help you with that math and tell you what the hell’s going to work?

Reed: People need to understand that it’s still really important to negotiate a good deal, to buy the right car, all of those other pieces. What i’m worried about with Cash for Clunkers is people are going to hear about Cash for Clunkers and just race down without doing their homework. And what’s going to happen is you still need to negotiate your lowest purchase price and then deduct the Cash for Clunkers. SO this doesn’t guarantee that you’re going to get a great deal.

Vigeland: Does this plan, the Cash for Clunkers plan, make it any better to buy a new car than a used car?

Reed: I’m a big fan of used cars and I think that that’s probably a bigger way to save money for a lot of people. It requires more expertise to shop for a used car, it doesn’t have the allure and the new car smell and all those other things. And people don’t realize that $4,500 is often just the swing from good to bad in a car deal. So it’s not like hitting the lottery or something like that.

Vigeland: What do you think Phil? You’ve been watching the industry for a long time. Is this program going to be effective? Because it certainly sounds like there are a lot of details you have to figure out before you can do it.

Reed: Yes, people are very confused by the bill, but they’re also very excited about it, based on the kind of traffic that Edmunds.com. We’re going about 16,000 hits per week, just on the articles about Cash for Clunkers. People are definitely watching this, they’re thinking about it and I’m sure it’s going to have some effect.

Vigeland: Well with that, Phil Reed of Edmunds.com. He is the senior consumer advice editor. Thanks so much for meeting us out on the lot.

Reed: Always good to talk to you.

Vigeland: Let’s go look at some cars.

Reed: Alright.

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