Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Car Allowance Rebate System (CARS)

What it is:

The Car Allowance Rebate System (CARS), also known as "cash for clunkers," was a U.S. federal government funded program that provided economic incentives for people to purchase a more fuel-efficient car when trading in their old, less fuel-efficient car.

How it works (Example):

During 2009, both the U.S. House of Representatives and the Senate approved a supplemental war funding bill that also included funding for the Car Allowance Rebate System. With the purpose of improving economic conditions and helping the environment, the program provided monetary incentives for individuals to trade in their older, less fuel-efficient vehicles for newer, more fuel-efficient vehicles.

Appropriations for the program were initially $1 billion, but increased demand forced the government to appropriate an additional $2 billion to fund the program. Individuals who participated in the program by buying vehicles that were at least 7 mpg more efficient that their previous vehicle received a rebate voucher valued between $2,500 to $4,500 depending on how much more efficient their new vehicle was. The program ran from July 1, 2009 until the $3 billion funding ran out on August 24, 2009. 

Why it Matters:

CARS had mixed results. Many car models were declared ineligible for the program because they exceeded the maximum miles per gallon (MPG) rating required for trade-in vehicles, while vehicles of the same type with different engine specifications met the requirements. 

In addition to the confusion regarding which cars were acceptable to trade in, it was also determined that the program cost the federal government about $2,000 per vehicle and increased the average MPG rating of currents cars on the road by only 0.6 MPG. 

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