The federal government has recently suspended the Car Allowance Rebate System (CARS) because of the unexpected rate at which old cars were being traded in for tax rebates.
Dubbed as the “cash for clunkers” program, the government initiative was originally intended to remove aging cars from American roads and replace them with more economical vehicles. The program’s popularity, however, has resulted in an unexpected fast rate of trade-ins. The $1 billion allocated by Congress for the program is fast running out, experts say. They point out that the federal government has underestimated the overwhelming demand for tax rebates. Just a week into the program, the government is fast running out of money to offer Americans willing to give up their cars.
Some insurance analysts are also cautioning car owners against availing of the program so easily. They contend that purchasing newer vehicles can reduce the amount of savings from the ‘clunkers’ program drastically.
While commendable, the program is basically useless to car owners expecting to save money by trading in their old vehicles, some analysts explain. By buying newer and more economical cars, drivers have to pay substantial insurance. They explain that the savings from the ‘clunkers’ program will only go into purchasing auto insurance.
Industry sources say that it would be best for car owners to compare insurance quotes and estimate projected insurance costs with a new car. According to statistics, only 22 percent of Americans shop around for car insurance. Experts say that this can be a costly mistake especially with auto insurance dropping to an average of $1,879 last month.
Insurance specialists also provided an example to prove their point. A 15 mpg 1999 Ford Explorer with four-wheel drive system costs $1,390 on average to insure. Trading it for a tax rebate can give a car owner enough money to purchase a 2009 Honda Civic EX with 29 mpg. The new vehicle costs $2,215 to insure each year. In five years, drivers can expect to pay $3,500 for the new vehicle’s insurance with $825 a year as incremental cost of insurance.
Some of the top choices for replacement vehicles also show very minimal, if ever, savings. All of the vehicles selected for the analysis comply with the 20 mpg or higher requirement of the CARS program. Annual insurance expenses ranged from $1,770 for cheaper cars to as much as $2,850 for more expensive vehicles. The coverage increases for each year also range from $380 to as much as $1,460 for top-end cars.