An issue that is surfacing in the Cash for Clunkers program is that if the NHTSA rejects a Cash for Clunkers trade-in submission and the dealership has already made the traded-in vehicle's engine inoperative or has had the vehicle crushed, who is on the hook for the value of the trade-in? The dealer would not be able to give the vehicle back at the pre-trade-in condition. Now What? The devil is in the details as they always say.

The steps for the administration of the program are:

Step 1. When you bring your vehicle in the dealer determines if your trade-in qualifies for the Cash for Clunkers program.

Step 2.When you buy or lease a new vehicle, the dealer handles the submission of all the required information to NHTSA. Now here comes the sticky part. In the paper work that the dealership must send to NHTSA for approval, the dealer must testify and sign off that the engine has been made inoperable or that the vehicle has been crushed. So before the NHTSA approves the transaction your vehicle is made into junk! The pre-trade-in condition is now gone. Your collateral reduce to maybe $50.

Step 3. The NHTSA ensures that your purchase meets the requirements.

Step 4. About 10 days later, NHTSA will issue a financial credit to the dealer - assuming all program requirements have been met.

What happens if in Step 3 the NHTSA finds the purchase does not meet the requirements for the Cash for Clunkers program and no financial credit is issued to the dealership? If the paperwork and steps are followed, and the dealer has rendered your vehicle inoperable, who is on the hook for the $3,500 or $4,500 given to you as credit toward the purchase of the new vehicle? And now the transaction cannot be reversed because the dealership would have no way to give your vehicle back to you in pre-trade-in condition.

I can see dealerships developing a waiver for you to sign that states they are not responsible for your traded-in vehicle's value if the submission on the trade is not approved by the NHTSA. Do not sign such a waiver! If the dealership is requiring this, walk out.

The dealership is responsible to insure you qualify and the dealership is responsible to insure the paper work is done correctly. If they screw something up you do not want to lose your collateral.

Please understand the paperwork you are signing during the closing. The sales person is going to downplay all the documents as being standard boiler plate stuff and you are only thinking about jumping into that new vehicle. Do not fall for this!! BUYER BEWARE!

Another area to be careful about is to insure the dealership is using the correct data for the combined MPG data.  The only place to reference this is at the government's site.