Mar 13, 2009

Getting Stimulus From Stimulus Bill

The jury is still out on the Democratic stimulus package that edged through on a close vote in Congress along partisan lines. The American Recovery and Reinvestment Act of 2009, as it is officially called, authorizes millions of dollars to insulate and weatherize low-income housing and a staggering $8 billion for high-speed trains, but car dealers and consumers alike are wondering what it will do for car sales. 

Not much, according to many experts. The analysts at R.L. Polk, a well-known provider of automotive data, looked at a preliminary version of the stimulus package and said it would create only 94,000 incremental vehicle purchases this year by allowing buyers to deduct their vehicle-purchase-related sales tax from their federal income taxes. This would amount to a $330 in savings -- nice but not something to email the BFF about. While 94,000 vehicles sounds like a lot of cars and trucks, it must be taken in the context of an industry that garnered more than 13 million new light-vehicle sales last year and an industry that averaged some 15 million a year through this decade. The stimulus bill would also do next to nothing to aid the ailing Big Three automakers, who have asked for billions in government loans to tide them through these hard times. However, the bill does authorize big expenditures to modernize the federal government’s fleet of cars.

If one goal of stimulus is to get American car companies on a sounder footing, one has to wonder why the proposal authored by Senator Barbara Mikulski (D-MD) didn’t end up in the final, approved legislation. This proposal centered in an income-tax deduction for interest expenses on new-vehicle financing. Polk estimated that this plan would provide a consumer benefit of $1,250 per vehicle and would have provided an estimated sales boost in the U.S. of approximately 359,000 units.