A sales-tax break included in the American Recovery and Reinvestment Act so far has been slow to stimulate a jump in sales at Emporia’s new-car dealerships. Sales here, though, seem to be better than they are in other areas of the country, particularly on the coasts.
The sales-tax break, under ARRA, was intended to encourage new car sales by offering tax deductions to people who buy new cars from Feb. 17 through the end of the year.
Certified Public Accountant Cecil Lane said the savings are available whether or not taxpayers itemize deductions.
Lane compared the sales-tax deduction to a deduction allowed in 2008 for real estate taxes. People who did not itemize their income tax deductions previously had not been able to gain any benefit from real estate taxes. For 2008, people who do not itemize deductions, but have paid more than $1,000 in real estate taxes, are able to add their allowable amounts to their standard deductions.
“And that’s the way this sales tax is going to work,” Lane said. “It’s not a credit, it’s just an additional deduction off your adjusted gross income. It’s available regardless of whether you itemize or not and it’s good for purchases after Feb. 17, 2009, through Dec. 31.”
The buyer would recoup a percentage of the sales tax. If, for illustrative purposes, the sales taxes paid were $2,000 and the buyer’s income-tax rate were 30 percent, the buyer’s benefit would be $600.
Tim North, owner of John North Ford-Mercury-Nissan, said that potential buyers seem to be unaware of the sales-tax breaks now available on new cars, light trucks, motor homes and motorcycles.
“We might not see that much impact ‘til it gets closer to the end of the year, when people are thinking about their income tax return,” North said.
The dealership bucked a downward trend in January, but sales began to slow somewhat in February.
“There’s definitely been an increase in the sales of big pickups because of the price of gas being down and, conversely, actually the lower gas prices ... stunted the sale of some of our most fuel-efficient vehicles,” North said.
North speculated that more immediate results, like sales tax holidays or a “Cash for Clunkers”-type program, might have been more effective in spurring new car sales than getting a percentage back on sales tax.
The Cash for Clunkers project in Germany pushed sales up about 21 percent, North said, adding that a couple of U.S. states had tried a similar program.
“But I think they had a limit on the number of vouchers they would issue, and when that limit was reached, they shut their programs down,” North said. “Germany also had a limit, but I think when it was reached, they renewed it.”
The program helped German vehicle manufacturers and dealers, and had an auxiliary benefit by taking some older vehicles off the road — ones with poorer gas mileage, some that emitted more pollutants, and some that had become mechanically unsafe.
“So that’s the sort of civic-minded reasons for it, I guess,” North said.
Financing continues to be available for people with good credit.
“Some of our more credit-challenged customers are having a little harder time getting approved. Nothing that maybe a bigger down payment might cure for a lot of those people,” North said.
“I think people are still lacking a little bit of consumer confidence, maybe.”
Jeff Longbine, owner of Longbine Auto Plaza, said that the upward move in the stock market recently may take away some of the economic uneasiness that may have affected sales nationwide. Warmer weather also is expected to draw more customers to the new car areas at the dealerships.
“What we’ve seen is that used car prices have continued to escalate, so that means people’s trade-ins are worth more,” Longbine said.
Credit availability also has improved, since GMAC became a bank and sold some of its interest in the GMAC financing side.
“Since they became a bank, they have lowered interest rates and loosened credits, so that’s helped immensely,” Longbine said.
At Emporia Motors, owner Creig Agler said that a few customers had mentioned the sales tax option.
“We’ve got more demand for used than we have anything,” Agler said.
With the price of used cars rising, however, Agler expects new car sales to rebound when the used car prices get closer to new-car pricings.
Agler said that sales so far this year have improved over last year’s early numbers.
“Last week was really good,” Agler said. “This year’s been really good compared to last year. Our January and February’s really been good.”
Part of that may be attributable to the dealership’s receiving another award from Toyota. Emporia Motors is the No. 1 sales-satisfaction dealer for a two-month period, in the district, the region and the nation, Agler said. The company received a similar award last year.
Agler expects that new car sales will pick up again after spring break, when the weather warms up consistently and daylight saving time extends car-lot shopping possibilities.
Rebates, too, could be a plus for Emporia Motors and other local new car dealers.
Chrysler is offering an “employee pricing plus-plus” sale, which gives employee pricing to buyers of any new Chrysler, Dodge, or Jeep, plus a rebate of up to $5,000, and zero percent interest, Agler said. Toyota is offering a $1,500 rebate on Corollas and Camrys.
General Motors also has several offers running, Longbine said.
Now, most new GM vehicles are being offered at 0 percent interest, rebates in lieu of interest, depending upon the model, Longbine said. Savings can range up to $4,000.
At the John North dealership, there are “plenty of incentives and low interest rates,” North said.
Nissan has rebates up to $5,000, and 0 percent financing on certain vehicles, North said. Ford’s incentives are a little more complicated, relying on type of financing is used, owner loyalty or competitive conquest programs and other options to determine savings.
“There might be two or three different rebates that stack on top of each other to get to a figure,” North said. The amount can run as high as $8,500 on a one-ton pickup.
The incentives, combined with need, may make a recovery in sales inevitable.
“I know there’s got to be quite a bit of pent-up demand out there,” North said. “I read somewhere there was the annual sales rate of barely over 9 million. The normal sales rate’s in the 15, 16, 17 (million) annual range.”
When sales are in the latter area, the entire U.S. fleet of cars is replaced every 12 or 13 years.
“The 9 million rate results in a 25-year fleet turnover, and they say that’s just not sustainable unless people go from being two-car families to being one-car families,” North said.
The average car’s age in the U.S. is about 9.2 years old, according to the Associated Press.