Editor's Note: On Thursday, Aug. 20, the Department of Transportation, or DOT, announced that the "Cash for Clunkers" program will conclude Monday, Aug. 24 at 8 p.m. EDT. The DOT advised dealers to only conduct transactions under the program with consumers who have all of their paperwork ready to submit to the dealer during the transaction, as dealers will only have until Aug. 24 to submit completed applications for reimbursement. Consumers can review the program's requirements at 6 Steps to Cash for Clunkers.
All the publicity about the government's Cash for Clunkers program has made many Americans think about trading in their old vehicles for new ones. Even though the program has received an additional $2 billion allocation, taking the $3,500 or $4,500 credit under the Car Allowance Rebate System may not be the best choice, even for those who qualify. And, consumers who don't own a clunker by the government's definition currently have a great opportunity to get a better price for their trade-in.
The government program has caused a dearth of used cars and dealers are now paying more for used vehicles, according to research by car pricing site Kelley Blue Book. "Dealerships have reported increased foot traffic, creating a false sense of automotive market recovery. As a result, dealers are going to auction to restock inventory, driving up used car values," says Alec Gutierrez, Kelley Blue Book senior analyst of vehicle valuation.
This trend may be short-lived because dealers could end up with excess inventory once the demand for the "Clunkers" program has subsided. The excess inventory would in turn drive prices back down in the coming months.
Still, for consumers who are currently thinking about trading in a used vehicle for a new one, this trend could mean better trade-in value on the old car, while summer clearance sales on new cars mean great prices on a new model.
The result could be a smaller outlay of cash, or a lower amount financed, for the same vehicles purchased now versus waiting until later in the year. While a private party sale will generally get you the highest price for your vehicle, it certainly is more time-consuming and many consumers are just not comfortable with the process. So trading in a vehicle is often the preferred choice.
Start by using a reliable, independent source, such as Edmunds.com, Kelley Blue Book or NADAguides.com, to determine the trade-in value of the vehicle you want to ditch. Be sure to factor in the engine, transmission, drive train and all of the options on the car to get an accurate picture of the price. Each site will give you an estimate on what to expect on a trade-in and as a private party sale. Print out the pages with the pricing for your vehicle. You'll need them later when you negotiate your trade-in value at the dealership.
Keep in mind that these sites take a bit of time to analyze and update their data, so the values you see may be different than the price you could currently get as a dealer trade, especially with the "Clunkers" program altering the market over the last few weeks.
Next, determine if you qualify for "Clunkers" dollars. The government program has a number of restrictions on the vehicle and its owner, so only some cars qualify as clunkers. To find out if you qualify, read "6 steps to 'Cash for Clunkers'" and determine which rebate, if any, you qualify for.
Don't assume that the $3,500 or $4,500 rebate you qualify for is the most you can get for your car. The "Clunkers" program requires the dealer to submit extensive paperwork and then wait to get reimbursed by the government for the CARS credit for your old car. Many dealers are reporting difficulties with submitting the paperwork and are currently waiting on reimbursements in the hundred of thousands of dollars.
As a result, some dealers are willing to take some clunkers that are in good shape and run well, and that could be resold as a trade-in, and to offer a higher trade-in value than the "Clunkers" credit from the government.
Once you know your car's value and the "Clunkers" rebate you're eligible for, if any, sit down with the dealer and negotiate the best deal on your trade. You may even decide to visit several dealers in your area to see which one can offer you the best deal.
Read more Driving for Dollars columns and Bankrate auto stories.
Tara Baukus Mello is a freelance writer who has written about automotive topics of interest to consumers since 1995. If you have a car question, e-mail it to us at Driving for Dollars.