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Can Congress Spur Car Demand?

Maybe, but only sound economic basics can sustain a healthy industry.

by on Feb.06, 2009

uncle-sam-saysAuto sales are one way we take the economy’s temperature. Hot sales mean hot activity overall while an economic chill sends the sales-volume mercury plunging. But is putting a flame to the thermometer — subsidizing car sales in particular — a good way to re-heat the economy as a whole? Many policymakers hope so.

This week the U.S. Senate passed a measure, co-sponsored by Senators Barbara Mikulski (D-MD) and Sam Brownback (R-KS), to make interest payments on new car loans and state new car sales taxes deductible through the end of 2009. Offering her proposal, Sen. Mikulski said, “no matter how much government aid we give to the Big 3 auto makers, they can’t survive if consumers don’t start buying cars. That’s where my amendment helps.”

The sales crash was dramatic and it doesn’t look like things will pick up soon on their own. 2008 was the worst year since 1992, with a 13 million unit tally well down from the 16 million or more cars and light trucks that had been moving annually. Analysts project even worse sales in 2009.

The collapse is hitting all automakers as well as the nationwide matrix of suppliers and other firms whose fortunes are tied directly or indirectly to the car market. And with the run-up in fuel prices that peaked just as the financial crisis hit, the impact shattered the truck-dependent Detroit 3 worst of all.