Laura Rowley Money & Happiness

Back in July I wrote about the cash for clunkers program, and I interviewed a number of analysts who said it represented a once-in-a-lifetime opportunity to get a new car for the price of used. So we decided to take the plunge.

We owned a qualifying clunker: A whining, wheezing, 1996 Chrysler Town & Country minivan, flecked with rust and mold on the floor carpet. We'd bought it from a neighbor for $3,000 in the summer of 2006, when our original (used) minivan broke down on the way to the beach. The air conditioning failed almost immediately and the power steering rack would occasionally lock up on turns, especially in the rain. We spent at least $1,000 fixing it (and sweated through a summer with no A/C).

In the spring of 2008, we bought a 2005 certified pre-owned Honda Odyssey, but hung onto the monster as a second vehicle. After the clunkers program came out, we started looking for a smaller car to replace the Chrysler. Shopping list: Fuel efficiency of 28 mpg or more to qualify for a $4,500 rebate, high safety standards, a strong warranty and ample leg room in the back seat. Budget: $12,000 to $13,000 in cash. (We save in advance for car purchases.)

We procrastinated until mid-August, when the government announced the program would end. We doubled-checked the value of our trade-in ($884) at Kelley Blue Book and narrowed our list to the Honda Accord, Toyota Corolla, Ford Focus, Hyundai Sonata, Kia Forte and Nissan Sentra.

On Aug. 20, we began calling around and discovered our local Honda dealer had already pulled out of the program, concerned about meeting the government's filing deadline. We looked at the Corolla and took the Focus for a test drive, but the kids vetoed both as too cramped (my 9-year-old is 5-foot-3-inches and counting).

The Hyundai dealer said it had one 2009 Sonata left in the $18,000 range, with $3,000 cash back and the $4,500 clunkers rebate, putting it within budget. But by the time we arrived it had been sold. The salesman suggested the 2009 Elantra, similarly priced with $2,000 cash back. It felt sporty if still a bit tight on space.
 
Then we checked out the 2010 Kia Forte, which we all liked the best among the compact cars, but it offered no incentives. The dealer suggested we consider the Optima LX four-door, mid-sized sedan; he had one 2009 LX with automatic transmission left on the lot. We rejected the idea because its combined gas mileage -- 25mpg -- would only qualify us for a $3,500 rebate. But it came with $2,000 cash back from the manufacturer, for a total rebate of $5,500.

We liked the Optima's smooth handling, decent interior finishes and roomy back seat. It scored high marks for safety, and offered a five-year/60,000-mile bumper-to-bumper warranty (and a 10-year/100,000-mile powertrain warranty). We checked out online reviews by mobile phone while at the dealership and decided to jump on the Optima.

The manufacturer's suggested retail price was $19,720, and the dealer said his cost was $19,060. We split the difference and they came down to $19,300. Combined with $2,000 cash back from the manufacturer and $3,500 from the clunkers program, our price was $13,800. With taxes, registration, title and fees it totaled $15,540.

Among the nasty surprises: We were handed a document at the closing that said if the government did not reimburse the dealer for the $3,500, we were on the hook for it. We could return the car and get our money back, but if our clunker had already been scrapped, all we would get back was the price of the scrap. I insisted on adding a line that said we were not responsible if the dealer either failed to file the paperwork on time or made an error in filing.

In addition, unlike some other states, New Jersey charged 7 percent sales tax on the price before rebate, scooping up $245. (If this happened to you, you'll get some of it back with the IRS's special deduction for state, local and excise taxes paid on new vehicles purchases in 2009.)

So did we get a deal or get caught up in a frenzy? Jeff Bartlett, deputy online auto editor at Consumer Reports, estimates we overpaid by $750. "The 'dealer invoice' price is always at least $1,000 under MSRP," he wrote in an email. "Starting high then 'meeting in the middle' may have been fair in the feeding frenzy, but not where a car buyer really wants to be."

Because our shopping trip was so last-minute, we didn't order the Consumer Reports Bottom Line Price report for the vehicles on our list. The reports, updated every few weeks and available for $14, reveal the dealer's actual cost.

"Asking the dealer for the invoice price sets you up on the wrong side of the negotiation," Bartlett explains. "Rather, it is much better to know the numbers going in -- invoice, dealer holdback, customer incentives and hidden dealer incentives. The business is complicated, and there may be other legitimate financial factors, but with a printout in hand for these core elements, the customer will be in a much stronger negotiating position."

For the Optima automatic LX, the Bottom Line price was $17,874 -- factoring in incentives and dealer holdback. Add in our dealer's destination charge of $675, and we should have started the haggling at $18,549.

Bartlett says we should also have listed antilock brakes (ABS), electronic stability control (ESC), and side airbags as safety priorities on our shopping list. (We lucked out on that -- the Optima has all three.) Paying cash was our best move, Bartlett says. "It avoids the complications of the finance office, where the dealer has more tricks to make money, and it lowers your cost of ownership by avoiding financing charges," he says.

Jessica Caldwell, senior analyst with Edmunds.com, agrees we overpaid. The Edmunds invoice price is $18,840 for the Optima. "In this situation the power has shifted to the dealer because obviously it was a classic case of supply and demand," says Caldwell. "I was hearing a lot of people paying at MSRP or higher because of the clunker rebate." But she says if we waited and bought a used car, we'd face rising prices, as those inventories are shrinking, as well.

Moreover, Caldwell says we wouldn't have gotten cash-back from either Toyota or Honda. "In July, the dealer profit on the Corolla was $386 and in mid-August it went up to $831 -- so they were selling without incentives," she says. "The perception is that the Kias and the Hyundais of the world are inferior. In most cases, that's not the reality. The [Korean manufacturers] have made a conscious effort to get quality in line with Toyota and Honda."

As for that document at the closing, Caldwell says we should have asked going in whether any paperwork was required besides the standard contract. "A lot of buyers I've spoken to had to sign contingency agreements, or couldn't take delivery until the dealer was reimbursed by the government, which is not anytime soon," she says, noting one customer whose dealership is holding both her new car and her clunker hostage. "The dealer was supposed to assume liability, and in most cases it's the consumer."

Edmunds.com is approaching the National Highway Traffic Safety Administration (NHTSA) on behalf of consumers whose clunkers applications were rejected for reasons outside the spirit of the qualifications (i.e., a one-day lapse in insurance). If you have a similar issue, consider contacting Edmunds.