Polk Predicts the Impact of U.S. Government Incentives on Automotive Sales - Engine Builder Magazine

Polk Predicts the Impact of U.S. Government Incentives on Automotive Sales

Based
on analysis and evaluation of the economic stimulus package (as it
stood prior to its passage late last week), Polk analysts have
predicted that the current proposed government incentives will increase
U.S. light vehicle sales by 94,000 units in 2009, providing consumers
with an average rebate of $330 for each new vehicle purchased.

Throughout the negotiations between the House and the Senate over the
economic stimulus plan, Senator Barbara Mikulski (D-MD) spearheaded a
provision to help revive the sagging automotive market. Under the
current proposal, consumers who buy a new vehicle will be able to
deduct the sales tax from their income taxes.

Polk 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.

A previous proposal also included a deduction for interest expenses on
new vehicle financing. Under that plan, Polk estimates the average
rebate would have been $1,250 per vehicle, and would have provided a
sales boost of 359,000 units in the U.S.

"Although the current tax incentive is not as generous as the initial
one, it is nevertheless an encouraging measure. This incentive program
could be even more successful if coupled with additional steps to boost
consumer confidence that would drive more showroom traffic for
dealers," said Lionel Yron, director of Consulting & Analytics at
Polk.

"For example, Hyundai just launched a special program where U.S.
consumers can return their newly purchased vehicle if they lose their
income within a year. As a result, Hyundai’s sales are up 14 percent in
January while overall, the industry is down 37 percent compared to
January 2008," explains Yron. "The magnitude of this gap hints at how
much market uncertainties weigh on consumer spending."

Another interesting point of comparison is to look at the steps taken
by Western European governments to spur automotive demand in their
region. In Germany, consumers can receive a rebate of 2,500 Euros
(equivalent to $3,200 USD) if they scrap their old vehicle when
purchasing a new one. According to Polk estimates, this measure is
expected to increase light vehicle sales by 200,000 units for 2009 and
should push the German car market just above 3 million units.

"Because of the fixed rebate amount, small car buyers will benefit from
a greater discount. As such, Polk expects to see robust sales gains in
this segment. The scrappage bonus may very well ignite a sustained
recovery for the German car market," commented Ulrich Winzen, chief
analyst at Polk.

 

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