Following successful scrappage schemes in Europe, the United States government introduced a "cash for clunkers" scheme July 1 to boost auto sales and pull gas-guzzlers off the road.

Since the implementation of auto scrappage schemes in several European countries, J.D. Power and Associates found that car sales in Western Europe have risen, most recently by 4.1 percent, the first year-on-year increase in over a year, Forbes reports. The rate of decline of new car registrations in Britain has begun to slow since the scrap scheme was implemented and auto manufacturers have been able to increase their prices and recoup some of their costs.

Germany experienced a 40 percent surge in car sales in March and again last month. The country implemented the scheme in January and because of its success, has extended the program to the end of the year.

The U.S. cash for clunkers scheme, formally known as the Car Allowance Rebate System (CARS), however, is not expected to have nearly the same impact, the New York Times says. Unlike its European counterparts, the U.S. program is more restrictive as to what qualifies as a "clunker" and the program only has $1 billion in financing — enough for about 250,000 consumers.

According to the Oxford Analytica (registration required), about 75 million cars in the U.S. are likely to qualify — 30 percent of the approximately 250 million vehicles on American roads today.

In order to qualify for the scheme, the car must be less than 25 years old, get 18 mpg or less, and must be registered and insured for the full year preceding the trade-in. The voucher does not apply to used vehicles or for vehicles that cost more than $45,000.

In exchange, car owners could get a voucher worth $3,500 if the new vehicle purchased gets at least 22 mpg and would go up to $4,500 if the new car's mileage is 10 mpg higher than the old vehicle. Those trading in truck or sport utility vehicles (SUV) would get $3,500 if their new truck or SUV got at least 2 mpg higher than the old vehicle and $4,500 if it was 5 mpg higher.

The program would not make financial sense to car owners with vehicles that have a trade-in value greater than $3,500 or $4,500.

Automakers and their unions have lobbied for the incentives to help boost sales for the ailing auto industry and stabilize General Motors Corp. and Chrysler LLC, the Associated Press reports. The industry expects to sell less than 10 million vehicles in the U.S. this year, compared to more than 16 million in 2007.

"It's better than nothing, that's for sure" George Pipas, Ford Motor Co.'s chief sales analyst, told the New York Times.

GM CEO Fritz Henderson echoed the sentiment saying that "the legislation could help increase retail sales by 10 percent across the industry, and U.S. automakers would be part of the uptick," AutoWeek adds.

They may not play a very big part, however. Only eight of the 48 models that Consumer Reports recommends buying under the program are from the Detroit Three: five from Ford Motors, three from GM and none from Chrysler.

Still, many are hopeful the cash for clunkers scheme will encourage consumers to check out new cars. Any car. "The program could have a broader impact just by encouraging consumers to look at new vehicles," Jack R. Nerad, executive editorial director and market analyst for Kelly Blue Book, told the New York Times. "Some people will be moved to check out the program and start shopping for new cars. Even if they discover the program won't work for them, they'll get the new car bug. Anything that improves dealer traffic generally results in sales increases."

For those considering the cash for clunkers scheme, Business Insider provides step-by-step, illustrated instructions on "How to Take Advantage of Cash for Clunkers".

The program is expected to begin by early August and continue through the end of November or until funding runs out, whichever comes first.

Resources

Cars Allowance Rebate System

Scrappage Schemes Benefit Environment (registration required)
Oxford Analytica, July 2, 2009

Consumers Could Get Up to $4,500 Toward New Car
by Ken Thomas
The Associated Press, June 19, 2009

Rules May Limit Cash for Clunkers Program
by Nick Bunkley and Sara Peters
The New York Times, June 26, 2009

Jump Start For British Car Sales
by Javier Espinoza
Forbes, July 6, 2009

Cash For Clunkers Works In Europe
by Javier Espinoza
Forbes, July 7, 2009

GM CEO: 'Cash-for-clunkers' Bill Could Provide Lift for Industry
by Greg Migliore
AutoWeek, June 16, 2009

Cash for Clunkers: Recommended Cars That Qualify for a Voucher
Consumer Reports, June 15, 2009

How to Take Advantage of Cash for Clunkers
by Joe Weisenthal
Business Insider, June 29, 2009