There is mounting interest in the cash for clunkers program officially launched today, as evidenced by CR’s reader feedback and media queries. Automakers are beginning to fire up their marketing engines, enticing shoppers to consider replacing their low-value rattletraps with shiny new models. But the cash for clunkers program works just for a small subset of would-be shoppers.

The government’s “Car Allowance Rebate System” (CARS) provides about $1 billion to jump-start car sales and send older, gas guzzlers to the junkyard for recycling. Running until November 1st, the program can aid motorists by providing up to $4,500 to put toward a new car. Sounds appealing on the surface, but is cash for clunkers right for you?

To qualify, the trade-in vehicle must:

• have been manufactured less than 25 years before the date you trade it in.
• have a “new” combined EPA city/highway fuel economy of 18 miles per gallon or less.
• be in drivable condition.
• be continuously insured and registered to the same owner for the full year preceding the trade-in.

To be clear, the mileage target is based on the combined EPA figure. Many CR readers have cited that they don’t achieve the official figure. As the saying goes, mileage may vary. This is especially true with an older vehicle, past its prime.

The value of cash for clunkers
In order for the program to make financial sense, your current vehicle should have a trade-in value that is well under the offered credits, $3,500 and $4,500. By electing to use the CARS program, the buyer is choosing the automatic credit in place of negotiating a traditional trade in. No voucher or registration is needed, despite what some news outlets or Web sites may claim.

The program may have particular appeal to those who own a vehicle that is on its last legs. A car that has a serious engine or transmission problem, for example, may be more expensive to repair than the vehicle is worth. Such a vehicle can be hard to get rid of. Here, cash for clunkers provides a means to get out of the junker.

Is this the right time to buy?
Chances are, consumers drawn to this program have an older car and are predisposed to hold on to vehicles for many years. This is the ideal profile for a late-summer shopper who could take advantage of year-end clearance sales, yet not worry about the rapid depreciation that model will have when the 2010 models arrive at the dealers weeks later. (Conversely, if you are inclined to trade-in a car every three to four years, and drive less than 15,000 miles a year, look to the 2010s.)

Also likely, someone who has held on to a car until is it nearly worthless is frugal, either by nature or by choice. With new car prices hovering around $28,000 on average, this may necessitate a loan for more than $20,000. It is important to consider you payment comfort level and the personal risk of a multi-year commitment. It may be that the more prudent decision, especially during tough economic times, would be to consider a used car.

At the dealership
For those looking to take advantage of the CARS program, proceed with caution. Make sure you keep each aspect of the dealership experience separate: shopping, price negotiation, trade in or credit, and financing.

Maybe it has been years since you purchased a new car—your skills could be rusty and your enthusiasm barely contained. That combination is like chum in the water. The sales staff is hungry, well trained, and practiced. You are no match. By keeping the process broken into distinct sections, you can focus on ensuring you get a good deal and understand the terms. Plus, it will help you to focus on negotiating that new-car price, without having the numbers blurred together. It would be a tragedy to just claim the credit and drive off, thereby leaving thousands on the table. After all, old-car owner, you are frugal.

Brush up on our new-car buying advice, and do your research online to ensure you are targeting good, eligible, safe, and reliable cars. We have compiled a list of Consumer Reports recommended vehicles to help get you started.

—Jeff Bartlett

Visit our Cash for clunkers special section. Also, check out our New car buying and leasing forum to share your experience and give advice to others making the trade.

Read:
Cash for clunkers: Recommended cars that qualify for a voucher
Cash for clunkers: The best gas guzzlers to junk
Cash for clunkers: Compare the fuel savings
Cash for clunkers: Fuel and owner costs
Cash for clunkers bill cuts fuel consumption–running the numbers