Now that President Barack Obama has signed the "clunker" law, drivers ares considering whether to repair their old cars or replace them. Here are some things to consider.
>>
Background Music With Americans driving their cars longer than ever many people will eventually have to decide to either repair or replace the old clunker.
>> Old clunker?
>> Yeah.
>> That doesn't mean husband does it? It means car. Our financial contributor Ray Martin is here with some surprising new advice.
>> Ouch.
>> Good morning.
>> Good morning, Amette phonetic clunker, clunker.
>> Oh, I'm like holy, cow it's a whole new prospective.
>> There you go. So this question really comes up now because there's so many things going on with the clunker bill being passed by Congress. Is there a rule of thumb to follow?
>> Actually, the President signed it yesterday, the car allowance rebate system is now law and will go into full effect in 30 days. You know, but Americans are driving their cars longer. The median age of vehicles on the road today is 9.4 years. And when you own an older car you're eventually going to face those words, auto repair. So you have to make a decision.
>> Right. All right. So you have a checklist to help us decide if it's worthwhile to fix the car. Let's take a look.
>> Okay. Well, you got to look at safety, reliability, repair cost. You know, you're going to hand down the car to your teen driver you want to make sure it has all the safety features on it. They're more prone to accidents.
>> Because the big mistake people think I'm going to give the kid the clunker, but it's not as safe a car.
>> It's not as safe. And safety is priceless, right? Reliability getting back and forth to work. You need -- you know if you're going to have a big repair bill get at least two auto mechanics to estimate that bill before you decide to fork over the money. But the big one also is value and useful life. If the cost of the repairs are more than the value of the vehicle you want to rethink that, but also useful life. Does it extend the useful life of the vehicle.
>> See that's the thing about husbands.
>> Yeah.
>> Is we have a useful life you should let us hang around.
>> No matter how inaudible the mileage on the --
>> No, the mileage is irrelevant as long as you can --
>> Irrelevant. Now I got a formula for useful life here for you too. You want to think about this. I say for every $1,000 of repair cost you should get at least a year or more of useful life on your vehicle. Why do I come up with that? If it's $1,000 or less divided by 12 that's $83 a month. If you can drive a car for a year for $83 a month or more -- a year or more that's low cost repair for your driving, that's cheap driving, do it.
>> I'm not sure this goes on to the husband car metaphor. Continue, but I just want to ask this because you always used to say, you know, if you're going to get a new vehicle really shop for a used or one that's been leased for a couple of years because they really --
>> That works great with a husband. Get one with no baggage is that what you're saying?
>> Go ahead.
>> Bruised here and broken in, I don't know where we're going to go with this one, but I'll try to bring her back to the car side. I am a newer used car guy. I like to buy a year or two because --
>> There's all the depreciation.
>> That's right. I don't want to pay for the first year depreciation which can be 15 to 20 percent.
>> Let's talk about this cash for clunkers then.
>> Yeah.
>> How does it work? How can you best exploit it?
>> Okay. Well, the way this bill is the car allowance rebate system says if you take your old car and trade it in you can get up to $4,500 for it even if it's only worth $100. Even if it's worth nothing.
>> That's a lot of money.
>> As long as you buy a new, more fuel efficient vehicle. That's a game changer now and people are going to have to start thinking about do they buy a new car under this cash for clunkers.
>> I think we're introducing something like this into Britain at the moment. I think Gordon Brown is talking about --
>> And Germany did it and it was quite successful there.
>> Right. And so it's great for the auto industry and it gets --
>> Good incentives.
>> Part of the really, really smart part of this, the green part of this is to get the gas guzzlers off the road and replace them with more fuel efficient. And that's really the only other part of the equation is you have to buy something that's more fuel efficient.
>> Fuel efficient and brand new. Brand spanking new. Not just new to you.
>> Right. So if you are in the position to do this would you do it?
>> Well, here's the checklist you got to go through first of all, does your old car qualify for this cash for clunkers. So is it 25 years old or more or less rather, is it 18 miles per gallon, have you owned it for more than a year. You know, that -- you have to go through that. If you can sell in a private sale for more than $4,500 you want to do that. The last thing is can you really afford a new car loan? You don't want to spend all your emergency fund and get into payments that you can't afford because the new car you buy even with cash for clunkers rebate is going to become an old car with payments.
>> Okay.
>> Ray Martin, as always, thank you very much.
>> Okay.
>> Thank you, Ray Martin.
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