The bill would give $3,000 to consumers trading in cars more than 8
years old if they buy a new car that gets more than 27 miles per gallon or
truck getting more than 24 mpg. The rebate would rise to $4,000 to $5,000
for cars getting more than 30 mpg and for commercial trucks getting better
mileage than their older counterparts.
Ford Motor (F) , with sales down 44.1% in the first two months this
year, favors such a plan. "By providing incentives to purchase a new
vehicle, the legislation would help reduce consumer costs, jump-start the
economy and help support millions of good jobs in every state across the
nation," says Ziad Ojakli, group vice president for government affairs. A
Ford analysis shows it has 10 cars that fill the bill, General Motors (GM)
has 12, Chrysler, 10, Toyota (TM), nine and Honda (HMC), five.
Though the bill has automaker support, the potential cost could doom it,
says Scott Talbott, senior vice president of government affairs for the
Financial Services Roundtable. "The bill could become the victim of its own
success. If everyone takes advantage of it, then the costs shoot up."
Although Talbott says he supports the bill's goals, he's not sure if
many legislators are willing to sign on for another costly stimulus
bill.
To be sure it's hard to perform a detailed analysis on this plan until
it's finalized because so many things can change between the proposal
stage, and the time the bill passes. However based on the proposal's
high-level concept, I think it will benefit the foreign automakers more
than it will the domestic ones.
Just think about it: domestic cars are already heavily discounted and in
some cases are selling for 50% off, while the foreign automakers aren't
offering discounts of anywhere near the same magnitude. Based on marketing
practices that began back around '01 the domestic automakers have already
established themselves as the low cost provider, while the cost of foreign
cars has slowly increased. As a result the vouchers may be more attractive
to consumers for us in purchasing a foreign car than a domestic one.
Especially since there is more demand for many of the foreign models in the
first place.
A quick look through autotrader.com revealed that brand new Chevy
Malibus often sell for less than the cost of a used Accord or Camry, which
seems to support the idea that consumers who are already ignoring the heavy
discounts from domestic dealers may be more interested in using the
vouchers on foreign cars.
Another issue is that people who drive cars that are 8+ years old may
not have the financial strength to buy a new car, and/or may be enjoying
life without a car payment. Considering the state of the economy they might
be unwilling to take on a new expenses, or may find that getting a used car
that's 3-4 years old may still be cheaper.
Still it's hard to assess the potential impact of the plan until it's
finalized, and there is still a good chance that it won't get passed in the
first place.
I personally hope the proposal dies because I don't like the idea of
subsidizing car sales with taxpayer dollars, and I think the long-term
impact could be fairly negative in terms further cementing the role of the
Detroit automakers as low cost providers. It's really hard to put the genie
back in the bottle when it comes to pricing.
You can read the original article here, and the web site of the
Congresswoman who proposed the plan can be found here.
Sources:
USA Today: "$3,000 - $5,000 incentive for car buyers proposed" -- Sharon
Silke Carty, March 18, 2009.
