Car buying stimulus may not help

Tax incentives in the final bill are much less than originally proposed and may not boost auto sales.

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By Peter Valdes-Dapena, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- The economic stimulus plan is unlikely to help boost the auto industry because some say tax incentives for car purchases won't save buyers nearly as much as had been originally proposed.

Under the Auto Ownership Tax Assistance Amendment, car buyers will be able to deduct sales and excise taxes on the purchase price of a car up to $49,500. As originally proposed by Sen. Barbara Mikulski, D-Md., interest payments would have been deductible as well.

In an example provided by Mikulski's office, a family making $100,000 a year purchasing a $23,600 Chevrolet Malibu would save about $395 in income tax. In a similar example drawn up under the earlier proposal, in which interest payments were to be also deductible, that family would have saved $1,461 on its taxes.

For a family making $250,000 and buying a $35,000 Ford F-150 truck, the tax savings would be $588 under the current proposal, compared to $2,500 under the original proposal.

"It's going to take a whole lot more than that," said Jesse Toprak, a sales analyst with Edmunds.com. "We're talking about thousands of dollars to get people motivated at this point."

Auto sales have dropped to 26-year lows in recent months and automakers' own incentive plans are doing relatively little to stimulate sales. In January, automakers spent an average of about $2,700 per vehicle sold on incentives, according to an analysis by Edmunds.com, including cash rebates and low-interest financing.

"I'm not sure that incentive is likely to move anyone to do anything substantially different," Bill Pochiluk, an industry analyst with Automotive Compass, said of the final stimulus bill.

Mikuski called the end result a reasonable compromise.

"Through the rough and tumble of the legislative process, Congress has found a sensible center," Mikulski said in a prepared statement. "President Obama said the goal for the economic recovery program is to create jobs and save jobs. That's exactly what my proposal does."

The National Automobile Dealers Association, which had supported this and other proposals to stimulate auto sales released a statement in support of the measure.

"While including interest deductibility on auto loans would have promoted even greater consumer interest in a new automobile, we applaud both House and Senate leadership and especially Senators Barbara Mikulski, D-Md. and Sam Brownback, R-Kan., and Representatives Bill Pascrell, D-N.J., and Steve LaTourette, R-Ohio, for recognizing the importance of automotive retailing to the nation's economy," NADA said.

The auto-sales tax break, estimated to cost $1.7 billion over 10 years, is included in a $789.5 billion compromise stimulus package agreed upon by the House and Senate and set to be voted on Friday. To top of page

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