Stimulus Bill Provides Little Help to Today’s Car Buyers

The economic stimulus package provides tax credits for 25-mph-max neighborhood electric vehicles, and plug-in hybrid cars that won’t be on the market for at least two years—but today’s hybrids get nothing.

The $787 billion economic stimulus package signed into law today by President Obama may well be “an investment in the future,” but it contains relatively little to benefit today’s new-car buyers or to provide immediate economic stimulation. The American Recovery and Reinvestment Act of 2009 (pdf) sets the stage for the dawning of plug-in vehicles, but if you’re looking for help in buying a hybrid or conventional car this year, you didn’t get a lot.

Existing tax credits for purchase of hybrid vehicles remain unchanged. Toyota and Honda hybrids no longer qualify, and Ford hybrids will reach the sales cap and begin fading out sometime this spring, though the Nissan Altima Hybrid (only sold in eight states) and various hybrid models from General Motors will qualify for some time yet. The new law does not extend these existing hybrid credits.

The most immediate impact on green cars is the new tax credit for buying low-speed neighborhood electric vehicles (NEVs), electric motorcycles, and three-wheeled vehicles. Buyers of NEVs—small cars that cannot legally travel faster than 25 miles per hour—now qualify for a tax credit of up to $2,500. This provision has been criticized as pork for “golf carts.” There are a handful of other expensive and low-production plug-in cars, such as the Tesla Roadster, that also qualify.

Spurring Auto Sales

The stimulus bill does contain a provision to make buying a car a little cheaper: It allows new-car buyers to deduct the state and local sales tax paid on a new car from their federal taxes, even if they don’t itemize. The provision applies to any vehicle purchased, from a hybrid to a Hummer, before the end of 2009. The total tax reduction based on this provision is worth perhaps a couple hundred dollars. “A positive development, but we don’t think it would have an immediate impact on the market,” said Chris Hanford, vice president at Hyundai’s US operations, in an interview with USA Today.

Almost $1.7 billion was allocated to fund the deduction, but dealer reaction has been lukewarm, since buyers won’t see the money until they file their 2009 tax returns next year. Research firm R.L. Polk estimated that only an additional 94,000 cars will be sold as a result, less than 1 percent of total vehicle sales of roughly 10 million vehicles this year.

One that didn’t make it was a provision to allow the interest on car loans to be deducted, which had been a prime goal of lobbying by the National Automobile Dealers Association. This was expected to be a much greater spur for vehicle sales, since a majority of car buyers take out loans to buy new cars and loan interest often totals several thousand dollars. Polk had estimated that car-loan interest deduction could boost sales by roughly 360,000 vehicles during 2009.

Plug-In Wins

Plug-in Prius

Tax credits for plug-in conversions (available now) and for purchasing new plug-in hybrids (beginning in 2010) will help give birth to a new generation of super-efficient hybrid vehicles.

For hybrid buyers who want to do better than, say, the 50 mpg promised by the 2010 Toyota Prius, the stimulus bill grants a tax credit for 10 percent of the cost of a plug-in hybrid conversion. These conversions add a larger battery pack to lengthen the distance the car can run in all-electric mode. The credit maxes out at $4,000 (for a plug-in upgrade that costs $40,000), and the conversion kit must come from an authorized firm like A123/Hymotion—so building and installing your own plug-in parts doesn’t qualify you for the break. Only conversions done before the end of 2011 will qualify for the credit. A standard Prius conversion to a plug-in costs about $10,000—therefore the tax credit will be worth about $1,000.

The bill does offer benefits for car-buyers in future years who want to buy plug-in hybrid or fully electric cars. Provisions from the Senate version of the bill largely survived, with a few changes. The final language expands existing subsidies for (four-wheeled) plug-in vehicles with battery packs holding 4 to 16 kilowatt-hours of energy.

Right now, no such vehicles are offered for sale in the US market. Toyota plans to offer limited numbers of a factory-built Prius plug-in late this year, but for fleet tests only, and the much-touted 2011 Chevrolet Volt is not scheduled to go on sale until late next year. The credits, which cover vehicles purchased January 1, 2010, or thereafter, would apply to such planned vehicles as the Miles Highway Speed electric sedan. The previous credit had been limited to 250,000 vehicles; the new credits can be applied to the first 200,000 vehicles from each manufacturer that offers them. To date, at least six manufacturers plan to offer vehicles over the next four years that will qualify for the credits.

To assist the development of domestic manufacturing for lithium ion cells and battery packs, $2 billion of grants have been allocated. Over the long term, this is critically necessary to avoid US dependence on Asian cell manufacturers, but those plants—none of which exist now—won’t reach volume production for several years yet.

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  • Pickey McPickey

    Well, when you make poop, you get poop.

  • Ronnie Woo Woo

    Stimulus Bill…”woo woo”…Sucks…”woo woo.

    This idiotic spending debacle has about as much chance of working as the Cubs have of winning the World Series…Woo Woo!

  • Stefano

    I’m from Europe (Italy) and I agree about it.
    In Europe governments are “stimulating” for standard cars. What a mistake! In Europe we will really get poop because we stimulated to make poop… the same old poop!!!
    Stimulus is “an action to obtain something that you don’t have now”, so USA are well looking ahead.

  • John K.

    The subtitle currently reads, “The economic stimulus package provides tax credits for 25-mph-max neighborhood electric vehicles, and plug-in cars that won’t be on the market for *at least two years*—but today’s hybrids get nothing” (emphasis added).

    In the text, you have, “the much-touted 2011 Chevrolet Volt is not scheduled to go on sale until late next year.”

    You should change the subtitle to read, “for at least one and a half years.”

  • Jerry

    Ford Pretty much gets no benfit for having reasonable vehicles that are likely to make an imapact. They are production cars. How many people are actuallly going to comlpete a conversion? For those subject to AMT there will be no credit for purchasing a production vehicle made in the USA. Where is the incentive??!!

  • Dom

    Why couldn’t they just provide a credit for ANY car that gets better than say 35mpg?? Why do they have to push a particular technology on us? Maybe plug-in hybrids will be great, but what if they turn out to be just a bunch of hype or have unforeseen consequences? What if somebody develops a breakthrough in biofuels?? Encouraging more efficient cars across the board would do much more to help us I’d say. Besides, even with a $4,000 tax credit I still wouldn’t be able to afford the remaining $36,000 for a conversion or a plug-in hybrid.

  • Boom Boom

    If they just put a larger tax on gas, they’d have the effect that Dom is asking for. We can just plug the proceeds into R&D for alternative fuels/batteries/transport.

  • RandalH

    Boom Boom and Dom are correct. Increase the gasoline tax and offer a direct, immediate, stimulative tax rebate for buying a car that gets greater than 35 mpg. This would partially offset the tax increase, stimulate the automotive industry, and reduce oil consumption. It makes so much sense, you wonder why they won’t do it. I think the reason is that the politically influential Big Three don’t want to sell small, efficient cars because they don’t like the profit margins. They ceded that market to the Japanese, Koreans, and Europeans long ago.

    Oh, and if you want to favor a particular technology, that’s fine, but that should be on top of a partially offsetting rebate for generally improved mileage. If anything has been proven in the past year or so, it’s that the quickest way to affect gasoline consumption is the raise the price.

  • Samie

    RandalH, Boom Boom, and Dom
    We can debate raising taxes on gasoline but first what has be known to all in the auto industry is to somehow find new ways to make more money on smaller cars or develop a business model to address smaller profits on newer vehicles. That’s not easy and to add some teeth into this should be the use of updated CAFE regulations. I say this because we will see folks like GM and maybe Ford with their hands out wanting more loans to stay afloat in the future if say right now we increase gas taxes to somehow aid auto sales. I hope Obama w/ what he says is retooling address this problem first before possibly using some other incentives along with CAFE.

  • Big Green Machine42

    Forget about hybrids. There’s a new electric car coming out very soon.

    Wheego Electric Cars, a division of RTEV, is officially launching its U.S. dealer network. The first car will be the Wheego Whip, which is most certainly not a smart fortwo, and the plan is to find 50 dealers in America who want to sell them.

    Wheego has an exciting line of electric cars. My driving experience was — I could not drive it enough. The following article has more
    info on these great electric cars:

  • Sasha

    It seems that ZAP will be one of the biggest benefactors of the electric car tax credit. They are one of the only companies in production and have vehicles available for immediate shipment. see

  • Debra

    Yes, it does look good for 3 wheelers, FINALLY, every other tax credit eliminated 3 wheelers. They always include specifications for vehicles you can’t buy. SO, why bother. At least now, a usable tax credit. (in some ways I agree it’s just like all the rest of the credits) But as for me and my house: We are celebrating a small victory. At least something being made now is eligible.

  • hsr0601

    There is an inventor from Wisconsin who invented an all-electric car in the form of a Ford Ranger that was shown at the KARE 11 fair booth at the 2008 Minnesota State Fair.

    It is capable of reaching 100 miles per hour in speed, has a range of 300 miles, charges in 10 minutes and is pollution free with only the pollution that is done to make the electricity to charge it.

    The inventor of this invention has, to my understanding, approached Ford Motor Company with his invention. The Ford Motor Company, in my estimation, should latch onto this idea, pronto.

    My understanding is there are members of Congress who are trying to shoot down this idea of an electric car.

    Where is there any common sense in this country?

  • Mr. Awesome

    This is so sweet. I love the looks of this car.

  • Disgruntled

    This is such a fracking joke. Spurring auto sales is just what we need – get the spouting clunkers off the road.

  • Anonymous

    suck a dick

  • rajkumar

    very nice