Cash for Clunkers Set To Disappoint - BIG TIME.

And it's going to be a real pain for all involved. Why you ask? Afterall, there is great anticipation of the program's official launch on Friday 7/24 and there is plenty of information on the web explaining how it will work.

Yet most consumers believe they are going to get some kind of voucher they can use when they trade in their "clunker".

Unfortunately, this is a big misconception. The program is only going to benefit those whose trade-in value is worth less than $4,500 (or $3,500 in some cases). Far less in reality.

I want to repeat that.

Unless your trade is worth LESS than your tax credit, Cash for Clunkers (or CARS as it is now officially called) won't add up to anything more than a hill of beans.

I had my "aha" moment last night talking with well known auto industry expert David Ruggles of AutosAndEconomics.

According to Ruggles, you've got to look at the program from a dealer's perspective to truly understand it.

When a dealer takes a trade, he bases the trade-in credit for what he can resell it for to another pre-owned buyer. Most who qualify for the program are not thinking about this very important aspect of the business. And unless we get the word out, the dealer is going to take the blame.

Here's a simple example that Ruggles posed that made it crystal clear:

Let's say you have a 2000 Dodge Caravan that qualifies for CARS and has a trade-in value of $4,500. You go to the dealer expecting to get $4,500 for your trade PLUS your handy little $4,500 "voucher" from the government. You'll get $9,000 for your trade, right?

WRONG.

The dealer cannot resell your Caravan and recoup the $4,500 you wanted him to give you for your trade. This is because CARS requires the dealer to SCRAP your Caravan.

So the typical customer goes to the dealer thinking he's going to get $9,000 for his trade when in reality he's only going to get $4,500. Most customers are going to be really pissed and blame the dealer when it's not the dealer's fault at all.

The only real beneficiaries of the program are going to be those who truly have a "clunker" that has no significant market value.

Given the state of the current economy, Cash for Clunkers is generating a buzz that I've never quite seen before. Consumers and dealers are all chomping at the bit to take advantage of it but few really understand how its going to work.