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Making Cash for Clunkers work for you; Web sites and scenarios to help navigate new federal rebate

By Patrick Olsen, Cars.com, Source: Cars.com

If you've got an older, fuel-inefficient car, you're probably wondering how the newly approved Cash for Clunkers law can help you out. Here are the rules and scenarios you'll need to know to take advantage of the legislation, as well as where you can go to get any other information you'll need to make the deal work.

Ground rules: First, the vehicle you trade in must have a combined EPA gas mileage rating of 18 mpg or below. Keep reading if you're not sure how to find that rating.

Also, the new car you buy or lease -- and it must be a new car; used-car purchases don't qualify -- can cost no more than $45,000, and the car you trade in must be a 1984 model or newer. Oh, and you have to have owned and been insuring the car you're looking to trade in for at least the past year before you can cash in on this deal; no dusting off that junker that's been sitting in your garage for years (or buying your neighbor's) and trading it in for a credit. As of now, the program runs from July 1 through Nov. 1.

If you want to trade in your car...

1. ... for a new car: You'll get a $3,500 credit toward the purchase of any new car that has a combined EPA mileage rating of 22 mpg or better, so long as the mileage rating for the new car is at least 4 mpg higher than the one you're trading in.

2. ... for a new truck, SUV or minivan: The new vehicle must have a combined mileage rating of at least 18 mpg, and that number must be at least 2 mpg higher than your trade-in.

3. ... but want a bigger credit: You'll get a $4,500 credit if you buy a new car that improves on your old car's combined mileage by 10 mpg or more, but if you're buying a qualifying new SUV, minivan or pickup, it only needs to improve on your old car's rating by 5 mpg or more.

Now, if you want to trade in your SUV, minivan or pickup...

1. ... for a new SUV, minivan or pickup: You'll get a $3,500 credit for a new SUV, minivan or pickup whose combined rating is 18 mpg or better, so long as that rating is at least 2 mpg higher than your old vehicle's combined rating.

2. ... for a new car: The new car must still reach the 22-mpg threshold and must still have a mileage rating that's at least 4 mpg better than your trade-in.

3. ... but want a bigger credit: You'll get a $4,500 credit if you buy a new car that improves on your old SUV's, minivan's or pickup's combined mileage by 10 mpg or more, but if you're buying a new SUV, minivan or pickup, it only needs to improve on your old vehicle's rating by 5 mpg or more.

Any vehicle traded in must be scrapped, according to the law. There are stiff penalties for dealers who ignore this mandate.

The scenarios

As you'll see in the scenarios below, you don't have to buy a hybrid to make the credit program work for you.

Scenario No. 1: Your 1999 Ford Crown Victoria gets a combined 18 mpg, according to the EPA. You have your eye on a new 2009 Ford Taurus, but it only gets 21 mpg according to EPA ratings, so no credit for you because it doesn't meet the program's 22-mpg threshold. If you opt for the 2010 Ford Fusion with a four-cylinder engine instead, you'll get a combined 25 mpg and a $3,500 credit. If you want the $4,500 credit but want to stick with Ford, you could get a manual 2009 Ford Focus (28 mpg combined) or a 2009 Ford Escape (24 mpg) or Escape Hybrid with either four-wheel drive (28 mpg) or front-wheel drive (32 mpg).

Scenario No. 2: You've got two clunkers (sorry; that's the government's word, not ours) you want to turn in for credits to use toward the purchase of a new car. Can't do it; no single person can be issued more than one credit. Likewise, if you and your spouse are joint owners of a car, you can't both receive credits for it. Theoretically, you and your spouse could each buy new cars using those two old clunkers, but you can't use more than one credit to buy one new car.

Scenario No. 3: You've got a 2004 Kia Sedona minivan that gets a combined 16 mpg. You'd like to trade it in and get a new SUV that gets a combined 23 mpg (say, a 2009 Jeep Compass). You'd get a $4,500 credit for that move (because you're buying an SUV and your new purchase is rated 5 mpg better), but the trade-in value for your Sedona is in the neighborhood of $4,500 and the sell-it-yourself value is estimated to be roughly $1,000 more. The question is, is that potential extra $1,000 worth the effort to sell it yourself, or should you just take the $4,500 credit? Only you can make that decision.

Scenario No. 4: You've got a two-wheel-drive 2003 Chevy Tahoe that's EPA-rated at 15 mpg combined. You want to get a 2009 Chevy Traverse AWD (rated at a combined 19 mpg), meaning it's worth a $3,500 credit, yet the Tahoe's trade-in value is in the neighborhood of $8,000. Therefore, the logical decision here is for you to not use the credit program.

Scenario No. 5: If you would like to buy a hybrid, you can cash in on government deals in a couple of ways. Say you've got a four-wheel-drive 2001 Hyundai Santa Fe (18 mpg) and you want to get something similar, so you're looking at a four-wheel-drive 2009 Ford Escape Hybrid 4WD. Terrific! Not only will you qualify for a $4,500 credit -- because the Escape gets an estimated 28 mpg combined, which is well more than the necessary 5 mpg better than your trade-in -- but that Escape is also eligible for a hybrid tax credit of $975. You'll have to move fast to get that money, though, as the Escape Hybrid's credit drops to $487.50 after Oct. 1, then goes away entirely as of April 1, 2010. See what other hybrid tax credits are available at fueleconomy.gov.

Also bear in mind that Cash for Clunkers has no impact on the cash-back and financing incentives that manufacturers offer; using a credit won't stop you from cashing in on those deals, too.

Where do I find mileage estimates?

Before you can figure out what kind of deal you can swing using Cash for Clunkers, you'll need to figure out whether your car has a combined gas mileage rating of 18 mpg or less. Where can you find your car's combined mpg? Check out fueleconomy.gov and pick your car's year, make and model. If there's more than one entry for your car (because that model comes with a choice of engines or transmissions), click on the linked model name next to the info that matches your car. On the linked page, your car's combined mpg rating will be the one in the center, in red.

If your car is a 2007 model or older, you're in extra good luck: The EPA revamped its estimates beginning with the 2008 model year, typically reducing earlier estimates by a couple of miles per gallon. That means if your car was rated a combined 20 mpg when you bought it in 2007, it likely now has an EPA rating that meets the Cash for Clunkers maximum. The numbers on fueleconomy.gov reflect the EPA's revisions, so whatever's listed for your car is the figure the government will use to determine if the car qualifies.

You'll also need to figure out the mileage estimate for the car you're thinking of buying or leasing (to make sure it meets all the appropriate thresholds). You can get that info from that same EPA site, the automaker's site or by looking at the Monroney sticker on the car itself on a dealer's lot.

Editor's note: The numbers and figures listed in regard to SUVs, pickups and minivans refer to what the government classifies as "Category 1" trucks, which includes vehicles of this type whose gross vehicle weight rating is less than 6,000 pounds. Many, if not most, consumer vehicles from the past 25 years rate below that figure, but you can check your vehicle's GVWR in Cars.com's Research section, under Specs.

You can check out even more program details at the familiar-sounding www.cars.gov.

© 2009, Cars.com