Grant Thornton and “Cash for Clunkers”

Following are some ideas published by the consulting and accounting firm Grant Thornton along with my comments in CAPS! I welcome everyone’s input. Tell me where I’m wrong!

Grant Thornton: Five ways the government can help get car sales back in gear
Via press release and an article in Forbes, Grant Thornton, a corporate consultancy, offers five policy ideas that can help spur new car sales.
(1/22/2009)

Noting that the auto makers have received their bailout loans and GMAC has been propped up with Federal dollars, what is now needed is a way to prop up the consumers – and through the process, the nation’s 20,000+ auto dealerships.

With the start of the Obama administration there is much talk of the giant stimulus package that will soon be debated on Capital Hill. According to Grant Thornton (GT) there are two missing elements to most of the proposals on the table. The consulting firm suggests that what is needed is something that will stimulate consumers to buy cars and then something to ease the fear of making such a large purchase in uncertain times.

Following are the five actions that they believe would be effective in lifting new vehicle sales:

1. “Cash for Clunkers” – GT notes that a similar program has been in force in France and has a track record of success; keeping the car sales rolling during the recession of the early 1990s.

ruggles writes: I REALLY DON’T LIKE THIS ONE! PEOPLE WHO HAVE A RECENTLY PURCHASED VEHICLE GET LEFT OUT. ITS UNFAIR TO GIVE TAX MONEY TO SOMEONE JUST BECAUSE THEY HAVE AN OLD CAR AND CHARGE THE REST OF THE TAXPAYERS FOR IT.

2. Roll Back State Sales Taxes – This sounds like a revenue killer for already cash-strapped states and municipalities, but could be funded with Federal stimulus cash. Enterprise zones in some states that routinely offer similar incentives have proven effective in helping distressed areas revive – maybe it could help revive a struggling industry.

ruggles writes: I DON’T LIKE THIS ONE AT ALL. SOME STATES TAX AT 9% or more. SOME AT 5%…. SOME GIVE A CREDIT FOR A TRADE WHILE SOME DON’T. IT WOULD GIVE MORE THAN TWICE AS MUCH MONEY (TAX RELIEF) TO A CA RESIDENT THAN TO AN IA RESIDENT! IN WA I DON’T BELIEVE SALES TAX IS EVEN CHARGED. WHAT WOULD THEIR RESIDENTS RECEIVE FOR MAKING A PURCHASE? BUT THEIR TAX MONEY WOULD SUBSIDIZE EVERYBODY ELSE.

3. Make Auto Loan Interest and Sales Taxes Deductible – This has already been put on the table by NADA and would further encourage the large purchase in difficult times for many consumers.

ruggles writes: I COULD FAVOR THIS IF IMPLEMENTED FOR A FIXED TIME PERIOD, LIKE THROUGH 2009. MANY PEOPLE WOULD TAKE ADVANTAGE OF IT TO PURCHASE A TRANSPLANT INSTEAD OF DETROIT 3 VEHICLE, BUT IT WOULD SURE HELP DEALERS.

4. Expanded Tax Credits for Fuel-Efficient Vehicles – The article points out that existing incentives are far too narrow and expanding the number of vehicles eligible would help with environmental initiatives as well as helping the industry sell vehicles whose demand has fallen along with gas prices.

ruggles writes: HOW ABOUT SOMETHING TO BRING THE PRICE OF DIESEL FUEL DOWN FIRST! DIESEL IS A MORE EFFICIENT ENGINE AND DIESEL IS A MORE EFFICIENT FUEL. WE NEED A GAS TAX ANYWAY SO WHY NOT USE SOME OF THE PROCEEDS TO PROVIDE ADDITIONAL INCENTIVES FOR FUEL EFFICIENCY. WITH CHEAP GAS AND NO INCENTIVES WE’VE SEEN WHAT HAS HAPPENED TO PRIUS SALES.

5. Introduce National Credit Unemployment Insurance – GT is suggesting that an insurance program that would cover the car buyer’s monthly payments if they were to lose their job could be funded by a 1 percent or 2 percent fee on the vehicle’s wholesale price. This sounds very similar to Hyundai’s recent promotion, and like a very good idea.

ruggles writes: THIS IDEA MIGHT HAVE LEGS! BUT WHAT IS TO KEEP SOMEONE WHO THINKS THEY MIGHT GET LAID OFF FROM GOING OUT AND BUYING A VEHICLE JUST TO GET THE PAYMENTS MADE FOR THEM. THIS INVITES “ADVERSE SELECTION.”

According to Grant Thornton’s, Paul Mellville, if the Obama administration just took a couple of these ideas and ran with them, “America’s car dealers will do the rest.”