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Car dealers hope rebate program, sales tax break will attract customers [The Baltimore Sun]

By Eileen Ambrose, The Baltimore Sun, Source: MCT Business News

Jun. 24--Joe Fitzpatrick has thought about replacing his 13-year-old Buick for months, but might hold off a little longer to take advantage of a new government program that will give him as much as $4,500 to trade in an aging gas-guzzler for a new, more fuel-efficient ride.

The cash incentive means the Towson resident, who is 62, will likely add some extra features to his new car like a navigation system, Bluetooth communication system or heated seats.

"More gingerbread on it," he says.

Congress created a "cash for clunkers" program last week as part of a military spending bill that President Barack Obama is expected to sign. Under the program, you could get $3,500 or $4,500 for giving up your old vehicle to the scrap heap and buying or leasing a new vehicle that's fuel efficient.

The program has dual goals of helping the environment and car manufacturers. Some critics argue that it doesn't do either job well because of its limitations. But if you fall within those limits, this may be just the incentive -- coupled with a sales tax break on new cars this year -- that may get you into the dealership.

"We think it's going to help us sell some cars," says Tom Cook, sales manager at Anderson Automotive in Baltimore.

The details are still being worked out. The government should post them online -- including which types of vehicles are eligible and where to find participating dealers -- in the coming weeks.

Here's what's known so far:

Vouchers worth either $3,500 or $4,500 will be available to offset the price or lease of a new vehicle between July 1 and Nov. 1. Leases must be for at least five years. Not just any old and new vehicles qualify for the cash program.

To get a $3,500 voucher, for example, you must buy a passenger automobile that has a combined fuel economy -- calculated using the vehicle's highway and city miles per gallon -- that's at least 4 miles per gallon higher than the car you're trading in. Also, your old auto can't get more than 18 miles per gallon; the new passenger car must have a combined fuel economy of at least 22 miles per gallon.

For a $4,500 voucher, the new passenger car must get at least 10 miles per gallon more than the trade-in.

Trucks fall into three classifications, and the rules are more complicated.

Trade-in vehicles must be less than 25 years old. New vehicles can't cost more than $45,000.

You also must have owned and insured the old vehicle for at least one year before trading it in, says Peter Kitzmiller, president of the Maryland Automobile Dealers Association. That's to prevent people from buying a $100 used car and then trading it in to get the voucher, he says.

The aim is to get gas-guzzlers off the road, so your old car will be junked. You won't get money for the trade-in on top of the voucher. So this program is not for you if your old vehicle is worth more than the voucher.

"This will help people who bought a $1,000 car a year ago, and now have the wherewithal to buy a new one," says Bob Trinz, senior tax analyst with Thomson Reuters' Tax & Accounting.

Kitzmiller says this program along with a new sales tax deduction can add up to sizable savings. That new tax break allows you to deduct on your federal return the sales tax on a new vehicle purchased between Feb. 17 and the end of the year. It applies to the sales tax paid on the first $49,500 of a vehicle's price tag.

The voucher also won't be counted as income for tax purposes, Trinz adds.

But Jeremy Anwyl, chief executive of the automotive site Edmunds.com, advises consumers not to get too excited.

"It's not going to hurt. It's just being oversold," he says.

Anwyl advises checking out the value of your old vehicle before signing up for the cash for clunker program to see if the voucher is worthwhile. You can check the value online at the Edmunds.com site, which also lists vehicles that will likely be eligible for the clunker program.

Fitzpatrick says he plans to get cash for his clunker, unless he can find a better deal before July. He says his 1996 Buick Century has about 140,000 miles on it and isn't worth more than $500. It gets 12 to 15 miles per gallon. "I'm sure my car is not environmentally friendly," he says. "I don't know who would want to buy it."

He's looking at another mid-sized Buick or a Toyota Avalon that should qualify for the $3,500 voucher. "If I want a smaller car with better gas mileage I would get a higher voucher for that car. I'm not sure if I would like a smaller car," he says.

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Copyright (c) 2009, The Baltimore Sun

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