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Car buyers eager to get big federal rebates

July 4, 2009 9:28 AM EDT
By Jere Downs

It is happening already. Customers are asking new-car dealers about getting as much as $4,500 for their old gas-guzzlers.

The new incentive, popularly known as "Cash for Clunkers," took effect Wednesday.

But it will be weeks before anyone knows the fine print of the federal program, such as how dealers register with the government for reimbursement of the rebates, or when and how salvage yards should process old vehicles into scrap.

To get the credit, the gas-guzzler has to be taken off the road and either destroyed or broken up for parts.

Consumers, car dealers and salvage-yard operators who want to participate in the program said they have plenty of questions while they wait for detailed guidelines due July 23 from the Transportation Department.

"People are coming in and demanding this cash. The government still has not instituted requirements for the dealers. There is a lot of confusion," said Scott Roth, president of the Greater Louisville Auto Dealers Association. The federal program, he said, "is not really in place yet."

The initiative, officially the Consumer Assistance to Recycle and Save or CARS program, aims to get beaters off the streets forever while giving automakers a boost.

When drivers give up certain older vehicles, dealers can directly credit $3,500 or $4,500 against the cost of a new vehicle. The credit replaces any trade-in value of the vehicle, which can't be resold.

You must have owned and insured the trade-in vehicle for at least a year. That vehicle must be in driveable condition, and the model has to be rated by the Environmental Protection Agency with combined city and highway fuel mileage of less than 18 miles per gallon. Some large work trucks and vans have different rules.

The offer runs through Nov. 1.

At Town & Country Ford on Preston Highway, sales manager Barry Brown said his dealership started offering the incentive Wednesday, three weeks in advance of the federal government's fine print.

Customers are eager for the deal, he said. Some have an extra, old car in the driveway. Others have a car left over from a kid who has gone off to school. The appeal for some will be irresistible, Brown predicted.

"If you are driving a $500 piece of poop and someone wants to pay you $4,500 for it, you are coming out of that car," Brown said. Besides, he said, the federal money may soon be gone.

At Town & Country Wednesday, Shepherdsville retiree Frank Smith, 62, took home a red Ford Focus for $14,946. Discounts of roughly $8,000 off the sticker price, he said, included the $4,500 federal credit for his 1991 Ford Explorer with 223,000 miles.

Paid for with cash from a home equity loan, the Focus joins a 1994 Town Car and a Ranger pickup with 134,000 miles on it in Smith's driveway. But the Focus gets between 24 and 33 miles per gallon, above the 17 mpg of his old Explorer, Smith said.

"This is the first new vehicle we have bought in three decades," Smith said. "This is a great program for middle-class people." Still, the program is modestly sized.

Congress only authorized $1 billion in federal funding for CARS. That limits transactions to between 211,000 and 272,000 new or lease purchases nationwide.

"We are trying to get a jump start," Brown said, even though details remain sketchy. "As of right now, we have no idea how we are going to get reimbursed (by the federal government). ... We don't know if we have to take the engine out of it .""

Others predict the CARS program will get few takers as consumers see more reason to sit tight during the recession.

"There will be a modest amount of folks that come in under the program," said Michael Wilson, executive vice president of the Automotive Recyclers Association, a trade group of 1,000 salvage-yard operators and parts dealers based in Manassas, Va.

Besides federal funding limits, auto experts wonder aloud whether people driving, say, a 1990 Buick Regal, can really afford the payments for a new Chevrolet Malibu.

Put another way, someone driving a "hooptie," slang for an old beaten-up car, is in no condition to purchase a "whip," a term for a sleek, new vehicle.

"People that really need a new car can't afford it," said Mike McLean, manager of Bessler's Auto Parts, a Louisville salvage yard. "If they are in an older vehicle, they are probably in that older vehicle for a reason."

Still, dealers who have suffered through a 40 percent drop in sales in the past 12 months are anxious to offer customers the new incentive, said Ronald Jackson, president of the Kentucky Auto Dealers' Association. The organization represents about 300 new-car dealers statewide.

Dealers also know that demand for new cars has been pent up during the recession.

"It may be the best opportunity dealers have had for some time," Jackson said, adding, "If we can get the government to tell us how it works."

Among expected guidelines are rules on how the government will register dealers in the program, prescribe how quickly trade-in vehicles should be crushed, and outline reporting methods to ensure that the vehicle is never sold or driven again.

Salvage yards also expect to learn which parts can be resold.

Until then, the National Highway Traffic & Safety Administration is offering some guidance at www.cars.gov, devoted specifically to the program.