Car Allowance Rebate System - CARS

What is 'Car Allowance Rebate System - CARS'

The Car Allowance Rebate System was a U.S. government program that allowed people to trade in used vehicles that did not meet government-specified fuel economy standards. Under President Barack Obama’s administration, people trading in old cars could qualify for a discount of either $3,500 or $4,500 off the purchase or five-plus-year lease of a newer, more fuel efficient vehicle. The program began on July 1, 2009, and ended shortly thereafter because it became so popular that funds quickly ran out.

BREAKING DOWN 'Car Allowance Rebate System - CARS'

Commonly known as "Cash for Clunkers," the Car Allowance Rebate System’s stated purposes were to reduce air pollution, to stimulate consumer spending and to prop up struggling U.S. auto manufacturers (though the program did allow the purchase of foreign vehicles). Ultimately, consumers traded in as estimated 680,000 vehicles. Car dealers were required to crush or shred the trade-in vehicles.

The Car Allowance Rebate System was initially a $1 billion program. Due to its popularity, Congress quickly allocated an additional $2 billion, bringing the total to $3 billion.

Car Allowance Rebate System’s Legislative History

Economist Alan Blinder helped popularize the idea of a scrappage program, and the moniker "cash for clunkers", with his July 2008 op-ed piece in the New York Times. Blinder argued that a cash-for-clunkers program would have a tripartite purpose of helping the environment, stimulating the economy, and reducing economic inequality.

The House approved the creation of a cash-for-clunkers program with the 298 to 119 passage of the CARS Act. In the Senate, the cash-for-clunkers legislation was inserted into a larger war supplemental funding bill. In response to the U.S. Department of Transportation estimate that the $1 billion appropriated for the system was almost exhausted by July 30, 2009, due to very high demand, Congress approved an additional $2 billion for the program with the explicit support of the Obama Administration.

Car Allowance Rebate System Eligibility Requirements

The following criteria was put in place to qualify for the Car Allowance Rebate System program:

  • Vehicle must be less than 25 years old on the trade-in date.
  • Only the purchase or five-year minimum lease of new vehicles qualify.
  • Generally, trade-in vehicles must get a weighted combined average rating of 18 or fewer miles per gallon (some very large pickup trucks and cargo vans have different requirements).
  • Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in.
  • Trade-in vehicles must be in drivable condition.
  • The program requires the scrapping of the eligible trade-in vehicle and that the dealer disclose to the customer an estimate of the scrap value of the trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.
  • The new car bought under the plan must have a suggested retail price of no more than $45,000, and for passenger automobiles, the new vehicle must have a combined fuel economy value of at least 22 mpg.