Sen. Bond to propose tax incentives for auto buyers

November 13, 2008 11:58 pm

— By Derek Spellman
dspellman@joplinglobe.com
Sen. Christopher “Kit” Bond on Thursday said he plans to introduce legislation that would make interest on car loans tax-deductible to help revive auto sales, while debate swirled on a separate proposal for a $25 billion loan for the country’s ailing automakers.
The proposal to be sponsored by Bond, R-Mo., and Sen. Barbara Mikulski, D-Md., would make interest payments on car loans, along with sales taxes or excise taxes, deductible for new cars purchased from Nov. 12, 2008, to Dec. 31, 2009, according to a statement released by Bond’s office. The senators plan to introduce the proposal next week as part of a broader stimulus package Congress will consider during a postelection session beginning Monday.
Bond said in the statement that the bipartisan measure would “provide the temporary and targeted assistance needed to boost auto sales which will help save American jobs, help middle class families and support the auto industry.”
The deduction would apply to loans up to $49,500, and would be phased out for families making more than $250,000 and individuals making more than $125,000. Bond’s office estimated that a family would save about $1,553 on a $25,000 vehicle.
Bond’s proposal came as Democrats try to enlist support for a separate plan that would pump $25 billion in emergency loans to U.S. automakers in exchange for a government ownership stake in Detroit’s car companies.
Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and Sen. Carl Levin, D-Mich., are developing legislation that would let the auto industry tap into the $700 billion Wall Street rescue money, approved by Congress last month, to fund their business operations.
General Motors Corp., Ford Motor Co. and Chrysler LLC are lobbying Congress to approve the aid, citing an economic downturn that has choked off auto sales, frozen credit and made them vulnerable. GM, the nation’s largest automaker, posted a $2.5 billion quarterly loss last week and has predicted that it could run out of cash by the end of the year without government help.
Asked for a reaction to the $25 billion loan proposal, Bond said, “While I have real concerns with another taxpayer-funded bailout, there are also thousands of workers in Missouri whose jobs are on the line, so the devil will be in the details.”
Rep. Roy Blunt, a Republican who represents the 7th District of Missouri, said he would be “really hesitant” to use money from the $700 billion rescue package for a loan to the automakers. The “real purpose of the previous (package) was to make credit available to” families so they can purchase homes, students so they can get loans for college, and small businesses so they can meet their needs, he said.
Blunt said he shared some of the same sentiments as Treasury Secretary Henry Paulson. Paulson on Wednesday said the auto sector was “critical,” but that the financial industry rescue was not designed for car companies.
“Any solution has got to be leading to long-term viability” for auto companies, Paulson said.
Missouri presence
Although the three automotive giants are based in the Detroit area, the automakers have a comparatively strong presence in Missouri.
More recent numbers were not available Thursday, but state figures from 2005 show that Missouri’s automobile industry employed about 36,500 people. That was nearly 12 percent of the state’s total manufacturing employment and accounted for 1.8 percent of Missouri’s gross state product.
Locally, few companies in this region deal directly or indirectly with Detroit’s three automotive giants, said Rob O’Brian, president of the Joplin Area Chamber of Commerce.
Ball-bearing manufacturer FAG Bearings, which has a Joplin plant, no longer makes bearings for the automotive industry, O’Brian said.
A division of Carthage-based Leggett & Platt Inc., called Leggett & Platt Automotive Group, provides automotive seat support and lumbar systems for the automotive industry. Operations for Leggett & Platt Automotive Group include a plant in Carthage, called Flex-O-Lators, that employs 180 people, said Susan McCoy, director of investor relations.
But Leggett & Platt Automotive Group’s market is international, McCoy said, and includes Europe, Asia and North America. Revenue from the automotive group’s North American markets accounted for 4 percent of the company’s total revenue last year, McCoy said.
The company could have some layers of insulation from what happens in Detroit because of the diversity of its North American market. McCoy said the North American market for Leggett & Platt Automotive Group does not involve just the three Detroit-based companies but many major automakers. Additionally, the company often does not supply the products directly to the automakers but to other suppliers that do, she said.
McCoy declined to comment on the proposed $25 billion loan for automakers.
O’Brian said the one notable exception to the auto industry’s local impact is the Superior Industries plant in Pittsburg, Kan., which makes aluminum wheels for light trucks and sport utility vehicles.
Company officials announced in August that the plant would close in mid-December, saying the American automotive industry is struggling with the shift from gas-guzzling SUVs and trucks to smaller, more fuel-efficient vehicles. The plant employs about 600 people.
Last week, the California-based company reported a net loss of $14.2 million for the third quarter.
In Pittsburg, Superior’s customers consisted of the Big Three automakers, principally General Motors.
Richard La Near, a business professor at Missouri Southern State University, said he opposes the $25 billion loan proposal for automakers because it would effectively reward failed practices that have been at work in the industry for years.
La Near said many of the industry’s troubles stem from its high cost for labor, particularly retirement and health benefit packages that unions have been able to acquire.
La Near also said he fears that a bailout package for automakers would lead to more companies asking for bailouts.
“The bailout is getting way out of hand,” he said.
Brian Nichols, a professor of finance and economics at MSSU, acknowledged the industry’s labor costs, but he also said part of the problem has been a sudden and dramatic shift in consumer demand.
For years, Nichols said, the American automakers focused on production of the larger, less fuel-efficient vehicles because that is what people wanted to buy.
In the past couple of years, he said, that demand has shifted to the smaller, more fuel-efficient vehicles in light of steep rises in the cost of gasoline, and it has been difficult for the industry to pivot from production of one to the other.
“That takes years retooling and redesigning to do,” he said.
The Associated Press contributed to this report.


Dire prediction

Advocates for the nation’s automakers have warned that the collapse of the Big Three could trigger a chain reaction in the economy, eliminating up to 3 million jobs and depriving governments of more than $150 billion in tax revenue.

Copyright © 1999-2008 cnhi, inc.