Dealers say ’09 car incentive lacks ‘wow factor’ for potential buyers

Ford dealership in Royal Oak, Michigan
REUTERS/Rebecca Cook
Four 2009 Ford Focus vehicles sit with a “Sale” sign under their hoods at a Ford dealership in Royal Oak, Mich. U.S. auto sales fell nearly 40 percent in the first two months of the year to their lowest level in 27 years.

Everyone knows the American automotive industry is hurting. But do you know there’s a provision in the American Recovery and Reinvestment Act of 2009 that’s meant to ease auto dealers’ pain and nudge up sales?

The law allows purchasers of new vehicles to deduct the cost of sales and excise taxes on their 2009 tax returns.

So, is it helping?

Not really.

“It’s not wowing the customers. It’s not anything that actually puts cash in their hand or brings them to the door,” says Scott Lambert, president of the Minnesota Auto Dealers Association, a group of 415 that’s seen 60 dealers drop out of the association in the past 14 months because of dealership consolidations and closures.

Nationwide, the U.S. car market “slumped nearly 37 percent in March,” MarketWatch.com reports, though things are a bit better locally.  “Sales have ticked up a bit, but they’re still way behind where they were last year. And sales always pick up around spring,” Lambert said.

Across Minnesota, January and February sales numbers this year were down 32 percent, compared with those two months last year, Lambert said.

Dealers believe a more immediate buying incentive is needed, Lambert said.  Customers would rather have cash that immediately goes to the purchase of a new vehicle, rather than wait for a tax break when they file their 2009 taxes.

He favors a “cash for clunkers” program that Congress is considering, something like the plan in place in California and elsewhere. A “scrappage” incentive-to-buy plan in Germany has attracted worldwide attention.   

Under such an effort, American consumers selling their gas-guzzling older cars would be given a voucher for up to $5,000 —  depending on the House or Senate version of the bill. Those vehicles would be scrapped, rather than resold.

The voucher then would be used to purchase a more fuel-efficient car. Proposals differ by fuel efficiency requirements and whether the voucher could be applied to fuel-efficient used vehicles as well as new ones.

Yet the proposals have an inherent problem, wrote Aaron Lowe, vice president of government affairs for the Automotive Aftermarket Industry Association, last week in the Chicago Tribune. Junker cars would pile up in landfills, he said. A better alternative would be for Congress to offer owners incentives to keep their vehicles running efficiently. 

Other critics argue the voucher plan payout equals about the same as a trade-in allowance and if people could afford to buy newer vehicles and more fuel-efficient vehicles, they would.

There’s an argument, too, that the effort would not result in a net gain to the economy. In Germany, for instance, trading in old jalopies boosted consumer spending on cars but led to a downturn in consumer spending in other retail sales areas such as electronics.

Cynthia Boyd, a former reporter and columnist for the Pioneer Press, writes on education, health, social issues and other topics.  She can be reached at cboyd [at] minnpost [dot] com.

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Comments (1)

  1. Submitted by Pat Lowther on 04/11/2009 - 05:57 pm.

    Some people have the money and are willing to buy but feel dealers need to do better on price. Inventories are so high everywhere it is time for dealers to get real and firesale cars. This will get tons of people in the door. Dealers will have cash, albeit not much profit, but their inventory problem (i.e. paying interest on floor plan debt)will be largely solved. Thereafter, dealers will have to be leaner to survive this downturn.

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