Can tax breaks boost car sales?
With sales of new cars and trucks dropping 37 percent in January, carmakers and legislators are looking at ways to boost sales, perhaps by offering consumers tax breaks to purchase new cars or trucks.
Though most analysts were discouraged by January’s dismal numbers, Ford president Mark Fields actually said he was encouraged by the automaker’s retail sales figures, which saw Ford’s market share increase for the fourth consecutive month. Fields also said that the market should benefit from the economic stimulus proposed by the Obama administration.
“You’re seeing all the action that Treasury and the Fed have taken in the past six months to put liquidity into the market place,” said Fields “That’s up to $900 billion and there obviously is going to be something in there (the proposed stimulus bill) for construction and consumer spending and that’s encouraging,” he said.
However, Fields also said that some form of tax break for consumers purchasing new vehicles would help. The U.S. Congress is currently looking at a number of different approaches to stimulate car sales on the consumer levels, among them allowing buyers to deduct interest on car loans, just like the do on mortgages, and a so-called “cash for clunkers” tax credit that would offer consumers a tax break for trading in older vehicles.
The National Automobile Dealers Association has been promoting the tax breaks since sales started tumbled to a 27-year-low last fall. “With auto sales constituting almost 20 percent of the nation’s retail economy, a boost in new vehicle sales would create a wave of economic activity, which would be felt through every level of the economy, from dealers on Main Street to the factory floor,” said David Regan, NADA vice president of legislative affairs. “House and Senate leadership and President Obama need to seriously consider how Sen. Mikulski’s’ bill enhances the economic stimulus legislation under consideration in Congress.”
Sen. Barbara Mikulski, who led the effort to win Senate passage of the tax break – which won on a 71-26 vote, this week – estimates the measure will cost about $11 billion over 10 years. The measure would cover up to the first $49,500 of the cost of a new vehicle purchased any time between November 12, 2008 and December 31, 2009. The program would be open to individuals earning up to $125,000, or couples with income of $250,000.
However, the tax breaks, and particularly, the cash for clunkers approach, has already come under fire.
Another automotive trade group, the Specialty Equipment Marketers Association, or SEMA, says attaching a national car crushing program to the economic stimulus package was tilted against trucks and SUVS. “Vehicles targeted for the scrap pile will likely include Chevy Blazers, Chevy Silverados, Chevy S-10s, Chevy Tahoes, Dodge Dakotas, Dodge Rams, Ford Explorers, Ford F-Series, Jeep Cherokees, Jeep Wranglers and any other SUV or truck that obtains less than 18 miles per gallon. Under the plan, the Federal government would pay a premium for 1999 and newer cars,” SEMA noted.
Instead of focusing exclusively on old cars as is typical with scrappage programs, this bill will target any vehicle with lower fuel economy ratings. Participants will receive a cash voucher to purchase a more fuel-efficient new car or used car or receive credit for the purchase of public transportation tickets. It will be illegal to resell the scrapped vehicles, since bill sponsors want to destroy four million pickups and SUVs over the next four years, SEMA claimed. The program will very likely lure rarely-driven second and third vehicles that have minimal impact on overall fuel economy and air pollution, the trade group contends.
“This is not a wise investment of tax dollars,” according to SEMA, which also said the bill discriminates against low-income individuals, who tend to drive older, less fuel-efficient vehicles. Parts for older vehicles will invariably become more expensve, SEMA said.
The program will kill any opportunity to market specialty products that are designed exclusively for the targeted pickups and SUVs, including equipment that increases engine performance and fuel mileage, SEMA charged.