Cash for Clunkers

Bill to Entice Trade-In of Gas Guzzlers

President Obama has signed a “cash-for-clunkers” bill. Consumers will be eligible for tax-free vouchers of either $3,500 or $4,500 toward the purchase or lease of a new, more fuel-efficient vehicle. Vouchers will be applied by participating dealers, reducing the purchase price and the government will reimburse dealers. Congress appropriated $1 billion for the program, which will begin on July 1, 2009 and end on November 1, 2009. The manufacturer’s suggested retail price for the new fuel-efficient vehicle cannot exceed $45,000. Domestic and foreign vehicles are eligible for the program.

The program is designed to remove gas guzzling, environmentally outdated automobiles from the roads as well as boost sales for economically depressed automobile dealers. The bill limits the number of vouchers to one per customer, including joint registered owners of a single eligible trade-in vehicle, and requires a dealer to certify that he will transfer the vehicle and its title to an entity that will ensure that the vehicle will be crushed or shredded within the program period, and has not been, and will not be, sold, leased, exchanged, or otherwise disposed of for use as an automobile.


Generally, a “clunker” must have a combined city/highway fuel economy of 18 miles per gallon or less. The vehicle must also be drivable, continuously registered and insured to the same owner for one year before trade-in, and not more than 25 years old. For passenger automobiles, the new vehicle must have a combined fuel economy value of at least 22 mpg.


Certain vehicles are divided into 3 “truck” categories:

  • A category 1 truck is a non-passenger automobile. This category includes sport utility vehicles (SUVs), small and medium pickup trucks and small and medium passenger and cargo vans.
  • A category 2 truck is a large van or a large pickup truck, based upon the length of the wheelbase (more than 115 inches for pickup trucks and more than 124 inches for vans). Note: some pickup trucks and cargo vans exceeding these thresholds are treated as category 3 trucks instead of category 2 trucks.
  • A category 3 truck is a “work truck” and is rated between 8,500 and 10,000 pounds gross vehicle weight. This category includes very large pickup trucks (those with cargo beds 72 inches or more in length) and very large cargo vans.



For category 1 trucks, the new vehicle must have a combined fuel economy value of at least 18 mpg. For category 2 trucks, the new vehicle must have a combined fuel economy value of at least 15 mpg. Category 3 trucks have no minimum fuel economy requirement; however, there are special requirements that apply to the purchase of category 3 vehicles. The credit for a work truck is limited to $3,500. Furthermore only 7.5% of the funds were allocated towards work trucks. Once that is reached no more credits will be available for work trucks.



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