Analysts Rate Stimulus Bill As Lean on Carmaker Aid

Car industry analysts and economists say the broad economic stimulus bill signed this week by President Obama offers little to revive the stalled new-car market in the United States, potentially complicating federal plans to rescue Detroit automakers.

Congress packed the stimulus bill with $3.5 billion worth of goodies designed to jump-start research and development into green car technologies. But analysts said the package itself lacks the type of government-backed incentives that have traditionally driven consumers into dealerships to buy cars.

"There really is no particular reason for consumers to buy cars under the new package," said Jesse Toprak, senior analyst at Edmunds.com. "We need to see more direct measures that will stimulate demand."

To the extent that it achieves Obama's goal of saving millions of jobs over the next year and a half, the stimulus package could prop up consumer spending and prevent the auto industry from weakening further. But for now, consumers are keeping a tight grip on their wallets.

The U.S. light-vehicle market, the world's largest and most profit-rich market, has hovered near the 17 million mark in annual sales in recent years. Last year, sales plummeted to 13.2 million as the economy soured, and economists have made progressively more glum predictions about sales levels in 2009.

Last week, J.D. Power and Associates projected that annual sales could dip as low as 10.6 million -- a level some analysts say suggests Americans have grown so reluctant to buy new cars that they are holding back on replacing cars that have been involved in accidents or no longer run.

Annual U.S. car sales of 10 million to 11 million will make it extremely difficult for any auto companies to eke out a profit. That could mean a lot more financial pain for General Motors and Chrysler, which have both taken billions in government loans and are now asking for billions more.

The sales slump in the United States is not threatening only the American auto companies. Automakers in Japan and across Europe are seeking billons in aid from their governments, partly to cope with the steep drop off in the United States.

"We have massive monetary and fiscal stimulus coming," said Bob Schnorbus, J.D. Power's chief economist. "But nobody is certain as to how effective it's going to be and how quickly it's going to impact the economy."

The stimulus package has $2 billion in aid for suppliers of next-generation car batteries, and $200 million in grants for electric vehicle technology. State and local governments get $300 million to reduce diesel emissions and $400 million to buy new alternative fuel vehicles. Another $600 million goes to improving the fuel efficiency of federal fleets.

But other consumer incentives were either killed or scaled back. Lawmakers rejected "cash for clunkers" language that would have given drivers tax credits for trading in older gas-guzzlers for fuel-efficient models. They also balked at a provision that would have allowed car buyers in 2009 to deduct interest on car loans from income taxes.

The lone provision to survive is similar to the deleted loan interest provision: It allows car buyers this year to deduct sales taxes from their income tax bill. Analysts questioned its ability to spur sales.

"If people are sitting on the sidelines and waiting, the sales tax being deductible is not going to give them a reason to buy now," Toprak said. He said most buyers are holding back primarily because of economic fears.

"The one word that can describe the automotive market now is uncertainty," he said. "During uncertainty the only decisions that we see consumers make are the ones that are absolutely necessary."

Pete Hastings, bond analyst and senior vice president of the regional investment firm Morgan Keegan, said the loan interest proposal would have added "a nice psychological boost" for consumers, but the stand-alone sales tax approach isn't likely to have the same pop.

Staff writer Kendra Marr contributed to this report.