Cash for Clunkers Arbitrage

To be clear, I think the whole Cash for Clunkers program is another idiotic idea from the current administration which won't even accomplish it's stated goals. But assuming that getting older cars off the road was a sufficient public good to require taking money from taxpayers to give to auto buyers what prevents the following:


According to the CARS.gov site:

• Your vehicle must be less than 25 years old on the trade-in date
• Only purchase or lease of new vehicles qualify
• Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
• Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
• You don't need a voucher, dealers will apply a credit at purchase
• Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
• The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.

Unless the actual legislation is more specific than the site, it doesn't say that it requires the trade-in to be registered and insured for a year by the person making the trade-in. If not, what prevents people from buying registered and insured but barely running crap cars from Craigslist for < $1000, such as this quick search turned up:

1999 Mazda 626 - $800

1999 mazda 626 *needs transmission*

and turning it in for a rebate. I'm too busy and lazy to actually pour through the bill itself to see what the actual language says, but according to the qualifications listed on the website I don't see why the above transaction would not be allowed, letting me buy a new car with the Feds picking up $3700 ($4500-$800). If this is wrong in some way, please let us know.

Addendum: In the more detailed FAQ on the CARS.gov it says the vehicle must "be continuously insured and registered to the same owner for the full year preceding the trade-in", so it would seem this particular loophole is plugged, although I'd bet some clever chop-shop mob guys could figure away around it. What sort of proof of registration and insurance is required and how closely is it going to be checked? Since the dealers selling the new cars have a strong incentive I would imagine they are not going to look too closely at the documentation.