R.L. Polk's analysts think that 94,000 new vehicles will be purchased at an average tax break of $330 over the course of 2009. To get that number, Polk's team analyzed vehicle prices, sales tax rates, registrations by state, and income tax brackets to develop its rebate forecast. The sales projection forecast is based on measuring the efficiency of past incentive programs across the automotive industry, together with current economic conditions including limited credit availability, low consumer confidence and a rising unemployment rate.
But the question on everyone's mind: are 94,000 new cars enough to make a difference?
In a market depressed by over 6 million from 2007 sales figures - nearly 40% off - yet still expected to approach or surpass 10 million cars, 94,000 seems like a rather small figure. A previous plan submitted by Democrats would have seen an average rebate of $1,250 per vehicle, changing Polk's model to reflect a significantly larger total of 359,000 in new sales. But that would also have come at a significantly higher cost to the taxpayer.
Polk has also taken lessons from government initiatives Europe. Germany, for example, offers a €2,500 ($3,200) rebate to new car buyers for turning in an old vehicle (like the now-defunct 'Cash for Clunkers' proposal). The impact of that policy alone on the German car market: 200,000 new sales, according to Polk. And that's in a market that will only sell 3 million cars this year.
But in the U.s., historical results tend to show 'Cash for Clunkers'-type ideas yield little in the way of new car sales or reduction in emissions, because the vehicles turned in are rarely the sort used for daily transport - and that's part of the reason the bill lost support in the Senate. The other part of the reason is that foreign car makers would have been at a disadvantage under the plan, due to the bill's wording.
Any thinking person, and especially those sitting in semi-circular seating arrangements in Washington, D.C., would do well to ask themselves these questions: even if 94,000 new car sales are enough to help the market on the whole, what impact will it have on U.S. carmakers? And what impact on the industry as a whole, including the supply chain and dealer networks? And ultimately, will those benefits outweigh the costs in implementing the tax cuts? Or has government already meddled in the situation enough? Does it matter if the cuts are cost-beneficial as long as they help the industry survive this catastrophic economy?
Questions worthy of consideration, if difficult to answer. Ultimately, however, it's the market, composed of American taxpayers, car buyers, consumers and borrowers - in short, the American citizenry - that will provide the answers to those questions, right or wrong.
