Cash for Clunkers

We have had several questions about the proposed Cash for Clunkers plan and at first glance it looks like a pretty good idea if you are considering the purchase of a new car. After a little examination and thought it doesn't seem nearly as attractive or effective as we have been led to believe.

If you have a "clunker" that you want to get rid of, and have the credit worthiness to qualify for a new car loan, and don't mind taking on new debt during the present financial crisis, then maybe you will benefit from the program.

A clunker is defined as any car built after 1984, getting less than 18 miles per gallon. To qualify for the new voucher program the clunker has to have been owned, registered and insured by the same person for at least one year prior to consideration for trade in.

Once traded in the clunker will be destroyed, not to re-enter the vehicle market as a drivable vehicle or as salvage parts. That means that all you are going to get is the value of the voucher regardless of the marketable value of the vehicle.

To qualify for a $3500 voucher you have to trade the clunker in for a car getting at least 22 miles per gallon, a net improvement of at least 4 mpg.

To qualify for a $4500 voucher you would have to trade into a car that has a rating of at least 10 mpg higher than your clunker.

For small trucks and SUV's (under 6000 pounds) the mileage increase is much less. The new truck has to get at least 18 mpg and the improvement from the traded in clunker can be as little as 2 mpg for a $3500 voucher and 5 mpg for $4500.

For larger SUV's and Pick Up's (6000 to 8500 pounds) the minimum fuel economy must be at least 15 mpg and the improvement must be at least 1 mpg over the trade in for $3500 and 2 mpg for $4500.

In any case the new vehicle cannot cost more than $45,000.

There are no restrictions on manufacturer, Domestic or Imports are allowed as long as the mileage criterion is met.

Proponents of the plan claim as many as 2 million new car sales will be stimulated by this incentive package. However, many in the automotive industry and the financial markets feel this estimate is grossly overstated.

The destruction of the clunker limits its value as a trade in to a maximum of $4500 thus eliminating most cars less than 10 years old. A person owning a car of greater value receives no incentive to trade.

Likewise a person owning a car that already gets reasonably good gas mileage would have little or no incentive to trade. In order to reach the improvement in mileage needed to qualify they would most likely have to down size the vehicle they drive.

Finally, this grand plan pre-supposes that the person wishing to make use of it will qualify to finance a new car. Most of the cars that would pass the clunker test are not in the hands of the original new car buyer. They are in the second or third tier of ownership, having passed from the new car buyer, to the "clean used car" market and possibly into the "we tote the note" segment. This segment of the car buying public seldom buys a new car and it is unlikely that even a $4500 incentive will improve his credit or personal finances enough to make a new car loan possible.

Many of us have an older car or pick up in our fleet that we use on weekends or maybe one of the kids drives to school. Replacing that vehicle with a 20 or 30 thousand dollar replacement, taking on a 5 year note and increased insurance costs may not make good financial sense.

Of course if "they" can get us thinking about a great deal on a new car and get us into the dealership they have a shot at selling us a new car even if we do not qualify for the incentive.

Did you know this part of
4th of July history?

4TH OF JULY Have you ever wondered what happened to the 56  men who signed the Declaration of Independence ?

Five signers were captured by the British as traitors, and  tortured before they died.

Twelve had their homes ransacked and burned.  Two lost their sons  serving in the Revolutionary Army; another had two sons captured.

Nine of the 56 fought and died from wounds or hardships of the Revolutionary War.

They signed and they pledged their lives, their fortunes, and their sacred honor.

What kind of men were they?

Twenty-four were lawyers and jurists. 
Eleven were merchants.
Nine were farmers and large plantation owners.
They were men of means, well educated, but they signed the Declaration of Independence knowing full well that the penalty would be death if they were captured..

Carter Braxton of Virginia, a wealthy planter and trader, saw his Ships swept from the seas by the British Navy.  He sold his home and properties to pay his debts, and died in rags.

Thomas McKeam was so hounded by the British that he was forced to move his family almost constantly.  He served in the Congress without pay, and his family was kept in hiding. His possessions were taken from him, and poverty was his reward.

Vandals or soldiers looted the properties of Dillery, Hall, Clymer, Walton, Gwinnett, Heyward, Ruttledge, and Middleton.

At the battle of Yorktown , Thomas Nelson, Jr., noted that the British General Cornwallis had taken over the Nelson home for his headquarters.  He quietly urged General George Washington to open fire.  The home was destroyed, and Nelson died bankrupt.

Francis Lewis had his home and properties destroyed. The enemy jailed his wife, and she died within a few months.

John Hart was driven from his wife's bedside as she was dying.  Their 13 children fled for their lives.  His fields and his gristmill were laid to waste.  For more than a year he lived in forests and caves, returning home to find his wife dead and his children vanished.  

Some of us take these liberties so much for granted, but we shouldn't. So, take a few minutes while enjoying your 4th of July holiday and silently thank these patriots.

It's not much to ask for the price they paid.

Remember: freedom is never free!

It's time we get the word out that patriotism is NOT a sin, and the Fourth of July has more to it than beer, picnics, and baseball.