On Saturday 24th July, Julia Gillard announced that should Labor be re-elected, they would enact a ‘Cash for Clunkers’ type scheme meaning that Australians who trade-in their pre-1995 vehicles for brand new fuel-efficient vehicles would be eligible for a $2,000 rebate once that car is scrapped.

This ‘Cash for Clunkers’ idea (officially called the Cleaner Car Rebate), has been pitched as an eco-friendly measure as it entices owners of older cars (gas-guzzlers) to trade up to more fuel efficient models. The $395m committed to the project would also mean a significant economic boost to the automotive industry id it does, indeed, encourage people to trade-up their cars. The cash for clunkers scheme in the US was embraced by the public but also drew fire from certain quarters as critics suggested that it only encouraged potential buyers to bring their purchases forwards rather than consider buying a new car that they haven’t before. The economic benefits of the cash for clunkers scheme are also doubted by some who argue that the environmental cost of the manufacture of the new car outweighs and emissions savings that the new cars will deliver.

One thing is for sure – and that is the cash for clunkers scheme will be enthusiastically embraced by those considering buying a new car, if they have a clunker to trade-in. At Private Fleet, our expertise rests with sourcing new vehicles and negotiating their price. Whilst we do trade-in vehicles, often for older cars, wholesalers may not commit as much cash as we would hope so it’s great news that this cash for clunkers rebate can take that side out of the equation and maximise the effective changeover price for our clients.

Key Points of the Scheme:

• $394m has been allocated to the scheme (officially called “The Cleaner Car Rebate”)

• Nearly 200,000 inefficient cars are expected to be taken off the road over a 4 year period from January 1, 2011.

• $2,000 will be “given” to an eligible recipient once their car is scrapped.

• The car must be a pre 1995 model.

• The new car must be from an approved list of fuel and emissions efficient vehicles (though this list is expected to cover nearly half of the new vehicles available in Australia).

• Trade in vehicles must be scrapped, not resold

There are also likely to be a few more conditions which we think will apply to the cash for clunkers Scheme:

• Only the purchaser or acceptable lessee of a new vehicle qualifies.

• The pre 1995 trade in vehicle must be fully registered continuously for a period of at least 24 months by the claiming owner.

• Trade in vehicles must be in a drivable condition.

• The trade in of your old car and the ordering of your new car must be simultaneous and must take place between January 1, 2011 and December 31, 2014 or until the money runs out.

• There will be a limit set on the price of the new vehicle and its fuel economy.

Luke Warm Reception

The “Cash for Clunkers” scheme has received a pretty lukewarm reception from both the Australian press and the industry. The detractors cite the following shortfalls.

• It is of little benefit to local manufacturing as only three locally made cars would be eligible. The Holden Cruze (to be locally made later this year, though currently imported from Korea) The Toyota Camry hybrid (at a cost of nearly $40,000) and the 4 cylinder Ford Falcon due soon and called the “Eco Boost”

• The Japanese scheme similarly compiled for economic stimulus during the GFC disallowed imported vehicles.

• It’s very expensive for the benefit, as estimates put the cost of removing CO2 is about four times more expensive than most of the alternatives

• .Costs estimates do not include the cost of administering the scheme and ensuring that “rorts” are not prevalent.

• Eligible cars are usually owned by the less well off, and they can’t afford a brand new car, and should not be encouraged to commit themselves.

• At best the scheme only brings forward an intended purchase rather than creates it, and $2000 is not enough as an incentive.

• It’s open to huge rorts. In the US log books for eligible cars were stolen and wrecked cars ‘cloned’, and in Germany some cars avoided the scrapyard and were exports to Africa. ‘But that cannot happen here’ says the Government in Australia

Will You Benefit?

So lets look at a few scenarios with cash for clunkers and see if it will work for you.

Q. I own a pre 1995 car but it’s worth much more than $2000. Can I benefit?

A. No – the government will allow just $2000 plus possible the scrap value. Sorry your car isn’t a clunker!

Q. Great, I own a car that qualifies, but I’ve set my heart on a new Holden Commodore, OK?

A. No – it probably won’t be on the list of acceptable new car, as it has a six (or eight) cylinder engine.

Q. I have a 1997 car, will it qualify in two years time?

A. Probably not, unless the government changes the rules.

Q. I have a 1998 Toyota Corolla. I can’t get more than $1000 cash for a trade in and want to update to a new Corolla – will I get the money?

A. Probably yes! If you have owned your car long enough and you plan to buy or lease a new Corolla.

Q. My car qualifies for the rebate but I can’t afford a new car. How can I benefit?

A. Unfortunately it doesn’t look like you can, as a trade in for a used car does not comply with the conditions.

The government estimates that around 200,000 people will get a “yes” and their $2000, and the country will save around 1 million tones of carbon by getting these old inefficient cars of the road.

So cash for clunkers does seem to have some merit – or does it? Have your say NOW on our cash for clunkers blog

To find out more about cash for clunkers, and whether you might be eligible, please get in touch on 1300 303 181.