Bailout Considered Just a Beginning for Revival of U.S. Auto Industry

Industry observers say that with lower gas prices, Americans might return to buying trucks and SUVs.
Industry observers say that with lower gas prices, Americans might return to buying trucks and SUVs. (By Charlie Riedel -- Associated Press)
By Kendra Marr
Washington Post Staff Writer
Thursday, December 11, 2008

Transforming the U.S. auto industry into a profitable, innovative sector is likely to take more than the emergency loans approved by the House last night. Business leaders and industry analysts said the companies will also need further government assistance to get customers back in showrooms and stimulate demand for energy-efficient vehicles.

The proposed government loans are "a critical first step," said Dan McGinn, chief executive of TMG Strategies and an adviser to General Motors. "But other things have to happen."

The $14 billion loan package approved by the House faces sizeable opposition in the Senate, but no matter what the fate of the package to keep GM and Chrysler afloat, players in the industry have other items on their legislative wish lists.

Chief among them are proposals aimed at getting consumers to open their wallets again. The recession has scared off shoppers, knocking down sales in November to levels not seen since 1982. And many of those who want to buy are finding it difficult to obtain financing.

To help address those problems, the National Automobile Dealers Association has suggested the government allow new-car buyers to deduct auto loan interest and sales tax on their personal income taxes. Others say a federal stimulus package could help get credit flowing and improve American households' purchasing power, providing an indirect benefit to automakers.

"This business doesn't run without credit," McGinn said.

The proposed bridge loans aim to push American automakers to produce more energy-efficient vehicles. But with gas priced below $2 a gallon, some industry observers say many consumers may prefer traditional models, trucks and sport-utility vehicles over more expensive hybrids.

"A certain segment of the population is very conscious of their consumption of fuel," said Dennis Virag, president of Automotive Consulting Group. "But the majority of people say, 'Oh fuel is cheap. I'm going to drive as much as I want and buy whatever vehicle I want.' "

Virag proposed a "consumption fee," a fuel tax much like those imposed in European and Asian countries, to encourage consumers to buy energy-efficient autos. Some environmentalists have called for a so-called "gas-guzzler tax" on those who drive larger vehicles.

"You want to drive consumers in a specific direction," Virag said.

GM and Ford have suggested the government could provide rebates or other incentives to encourage consumers to upgrade older cars to cleaner, fuel-efficient models.

"Automakers are not going to make money again until people start buying cars," said Aaron Bragman, an auto analyst with Global Insight.

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