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NEWS
US auto industry faces taxing times
'Fiscal cliff' could place strain on American market just as new-car sales are recoveringMost car companies in the USA have seen sales rise in year-to-date numbers, but two events in this final quarter of 2012 may reverse that trend.
One event – Hurricane Sandy – has already struck, as we reported around a fortnight ago. The other event is not a natural disaster, it's the so-called 'fiscal cliff' that economic analysts have been dreading since before the presidential election earlier this month.
Online media outlet, Autoremarketing.com, has reported Kelley Blue Book's estimation of what the 'fiscal cliff' could mean for the new-car industry. Basically, the US government must decide whether to extend "Bush era tax cuts" and a two per cent payroll tax deduction. The decision must be made by January 1 next year.
Alec Gutierrez, senior market analyst at Kelley Blue Book, forecasts an added impost of two per cent would equate to $2000 for households earning an income of $100,000. That, on a monthly basis, amounts to around $166, which is roughly what households set aside for car lease payments.
“This sum is equivalent to a lease payment on a brand-new subcompact and covers about half of a typical car payment on a midsize sedan,” Gutierrez was quoted saying in the report. “If this tax break is allowed to expire, given the fact that many household budgets already are stretched as far they can go, this could put some buyers on the fence about staying out of the market.
“This is bad news for those banking on vehicle sales continuing their recovery into 2013. While each of these tax cuts could negatively impact the auto industry if allowed to expire at the end of this year, the payroll tax holiday is perhaps of most importance to the average car buyer.”
Despite that, the industry is generally optimistic about the prospects for car industry in 2013. Kelley Blue Book – long-standing experts in used car values – anticipates the total market should expand by between 300,000 and 500,000 sales, as vehicle leases expire during the course of the year. And the damage done by Hurricane Sandy should result in an insurance payout-led recovery during the latter part of this year and early 2013.
However, should the country's economy return to a recession during the year, all bets are off. Even something as apparently inconsequential as the natural termination of a tax break could be the catalyst for that.
“Now that the election is behind us, the nation will be waiting on pins and needles as the President and Congress work together to address the looming fiscal cliff,” Gutierrez was quoted saying.
On that point, Bill Ford, Executive Chairman of the Ford Motor Company, left little doubt in a Bloomberg interview that newly reappointed president, Barack Obama, must broker a deal with the country's congress to avoid the US falling over that fiscal cliff.
“It’s vitally important for the economy that we work this out,” Ford said. “I clearly hope we get some bipartisan effort to avoid the fiscal cliff.”
President Obama has recently met with a number of business leaders, including Ford CEO Alan Mulally, to discuss the tax situation and other legislative measures scheduled for the final quarter of 2012. The consultative approach was welcomed by Bill Ford – great grandson of company founder Henry Ford – who heads the only car company to scrape through the GFC without a hand-out from the US government.
“It’s going to help the country,” Ford said. “Ford is not isolated from what happens to the rest of the economy.”
An economist cited by Autoremarketing.com expects President Obama to retain a reduced tax regime for taxpayers on $250,000 or less as a couple, or $200,000 or less as singles. That would apply to 98 per cent of the country's taxpayers, and claimable deductions for housing, healthcare, retirement and childcare are likely to remain in place for taxpayers earning less than $1 million annually.
The president's aims will be challenged by the Republican Party however, deeply opposed to lifting tax cuts for anyone – even those earning $1 million or more. Republican politicians would prefer to see the president find spending cuts in government, rather than reimposing heavier taxes on any echelon of the American taxpaying community.
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Written byCarsales Staff
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