Monday, August 10, 2009

Don’t let the Dealer Clunk You With Your Clunker

Since the U.S. Senate voted an extra $2Billion of our taxpayer’s money toward Cash for Clunkers, the insane rate of frenzied new car sales has not slowed. In over 40 years as a car dealer, I’ve never seen an incentive that has so energized the retail auto industry. The CARS program has so exceeded the expectations of our government, the auto manufacturers, and car dealers that auto inventories are evaporating at a rate so fast that dealers will be virtually out of cars in the next few weeks. Auto manufacturers will not be able to gear up production fast enough to keep cars on dealers’ lots.

Anytime you see buyers panicked into buying based on a program that’s almost too good to be true, you see buyers being taken advantage of. I’ve listed some of the main dangers you may encounter if you decide to trade in your clunker before Labor Day, September 7, which is when the program is scheduled to end. I believe it will end sooner because the extra $2 Billion will be gone before that.

(1) Confirm for yourself that your old car qualifies. You can get this information by clicking on or calling the toll free number 866 CAR-7891. The basic qualifying rules are that your car must be less than 25 years old, get no better than 18 miles per gallon, and be continuously owned and registered by you for at least one year. It also must be continuously insured for one year, but not necessarily by you. You may have given your old car to your child or grandchild. Knowing that your car does qualify and for how much, gives you an edge in the price negotiation.

(2) Do not tell the dealer you are negotiating a price with that you own a clunker. Tell him that you have no trade-in. When dealers know that you have a clunker worth $4,500 or $3,500, they see “dollar signs” and extra profit in their pockets. Surveys show the average profit dealers are making on sales with clunker trades is 20% higher.

(3) Get at least 3 competitive price bids. If you are Internet savvy, you can get a dozen or more price quotes in less than the time it takes you to drive to 3 dealerships. Your Internet price is usually the lowest price a dealer will sell a car for.

(4) Do not sign a form making you responsible for the government not paying the dealer the clunker money. Many dealers are requiring that customer sign a form accepting the responsibility to reimburse the dealer if the CARS program does not pay the dealer all the money that he expected. In many cases customers are signing these forms along with the myriad of others, not even being aware. If the dealer won’t budge on this, buy your car from another dealer.

(5) Demand to see the actual price the dealer is getting for the salvage on your vehicle. The government does not require that the dealer take this amount off the price of the new vehicle, but it does require that the dealer inform you of the “estimated” salvage value of your vehicle. This is so that you will have this information in negotiating the best price of the new vehicle. However, this is a big oversight in the government program and does not accomplish its intent. The estimated price means nothing and can be far from the actual price he sells your car to the salvage company for. The average price so far given as estimates to clunker owners is $75. In my dealership, with about 130 clunkers traded for so far, we are averaging about $450 per clunker. We allow the full salvage value less $50 [specified by the government]. Insist that the dealer take the full salvage price he got for you car [less $50] off the price of the new one.

(6) If you are buying a used car, be sure it’s not a clunker trade-in. It’s illegal to sell a clunker trade-in to anyone except an authorized salvage yard. But, with all the confusion going on and the desperation of many dealers, it’s likely that clunker trade-ins have been and will be sold. I’m seeing an unusually large number of old cars advertised for sale. If you see a used car advertised for under $10,000 be very, very careful. Check first to see if it would qualify as a clunker and, if so, do a CarFax title search and contact the previous owner. You may be able to get this information from the government, but their computers are so overwhelmed, it’s doubtful. Even if the old car you’re considering is not a clunker trade-in, be very wary of paying $6-$10 thousand for an old car that is worth a few hundred dollars for salvage.

(7) New vehicle inventories are approaching their lowest levels ever. You will be pressured by many dealers to buy a car you don’t want because the one you do is not available. They will tell you that, if they have to order the car, the cash for clunker program will have expired. This may be true but do you really want to spend $26,000 or for a new car that you really don’t wan to drive?

(8) 60 months is the minimum lease under the CARS program. This is another big mistake by the government. You should not lease a car for 60 months or more, but you have no choice with CARS. When you sign any lease contract, you are obligated to make a lease payment for every month the lease is for. If the car turns out to have big mechanical problems, you still have to make 60 lease payments. If you die, your estate must make the rest of the lease payments. If you become disabled, you’re still obligated. If you buy or lease another car before the 60 months is up, the unpaid lease payments are added to the price of that new car.


  1. Earl, again...wonderful post! We actually had our deal fall through this weekend because of that form and the salvage value. They would not pay us a penny for our van and insisted we HAD to sign that form! They stated it was part of the CARS program, but we wouldn't sign it since I knew that was not true. We had to fight to get our $500 deposit back and are now on to our 3rd dealer. We filled a fraud claim so hopefully others will do the same. Unfortunately with the number of people willing to pay list price in our area (Iowa) we are having a hard time finding a dealer who will to sell the Rav4 for less than list minus the $500 CB from Toyota. This is a bad place for the consumer. Any tips on negotiating that price down now that they know we have a clunker trade? Thanks!

  2. Hi, Andrea.

    Congratulations for standing up to your Toyota dealer and insisting that he inform you of the amount of money he was getting from the salvage company for your clunker.

    I wasn't aware that Iowans in your area are inclined to pay MSRP for their vehicles. You might want to try getting some prices on the Internet from dealers out of your area. One of my blog articles is entitled "The Internet Price Is Your Lowest Price". Please read it and it may be of help to you.

    RAV4's are in short supply and high demand now. We are selling them for invoice and keeping the Toyota incentive which amounts to about $1,000 off MSRP. Of course we don't charge a dealer fee either.

    The best tip I can give you is to negotiate the best price with as many different Toyota dealers as you can. Don't tell them you have a clunker trade until you have your best price and then insist that the $4,500 or $3,500 be taken off that price you already negotiated. Then insist that they tell you how much they are selling your clunker to the salvage yard for and negotiate again.

    Good luck with the third Toyota dealer you're talking to and let me know if there is anything I can do to help.

  3. Earl,

    Thank you SO much for all your helpful advice. Our 3rd dealer has worked with us and given us a wonderful price with NO waiver. I was quoted by 3 other dealers in our state and they all were only $700 below MSRP including the $500 CB from Toyota.

    Our Rav4 is in route now and when it arrives we sign and walk away, no waiver keeping us on the hook for $4500! I am happy we were on top of it. I couldn't have done it without your helpful advice. Too bad you do not have a dealership here in Iowa ;)



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