Tax break for car buyers?

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Uncle Sam wants you — to buy a car.

Or at least Barbara Mikulski does. In the latest prescription from Washington on how to revive the U.S. auto industry, the Democratic senator from Maryland is expected to unveil a proposal today that would provide a tax break on car purchases until the end of next year.

The proposal would provide a federal income-tax deduction for interest payments on car loans and sales and excise taxes on new-car sales. According to the National Automobile Dealers Assn., a typical family would save about $1,500 on a $25,000 minivan.

The dealers association, which says about 700 dealerships will close this year as car sales fall to a 25-year low, says the incentives are necessary to get folks into showrooms and, by extension, help boost the flailing U.S. economy.

“Now is the time for Congress and the White House to implement a stimulus package that is focused on Main Street,” said Annette Sykora, chairwoman of the dealers group.

Not surprisingly, the proposal is a hit with automakers.

“We are supportive of any incentive that gets the consumer into the showroom, because one of the most pressing elements automakers now face is consumer confidence and consumers struggling to get credit,” said Wade Newton, spokesman for the Alliance of Automobile Manufacturers.

Whether such an incentive will actually provide the sales boost the industry needs is another question, however.

Jessica Caldwell, an analyst with Edmunds.com in Santa Monica, notes that automakers are already offering huge incentives in an effort to boost sales — to little apparent effect.

In October, when industry sales in the U.S. plunged 32% compared with the same month a year before, the industry was offering an average of $2,700 per vehicle in incentives, which included cash rebates, low-interest financing and special leasing deals.

Incentives offered by GMC, which specializes in out-of-favor pickups and SUVs, average more than $5,000 per vehicle, according to Edmunds. Even mighty Toyota has resorted to 0% financing in an effort to draw customers onto its lots.

“If that’s not going to push people’s buttons, I’m not sure $1,500 in tax savings is going to do it,” said Caldwell.

“Making that big commitment to buy a car when they don’t know what their job situation is going to be four months from now is what’s really scaring people,” Caldwell added.

Press materials provided by the dealers group said it’s important that lawmakers act quickly on a tax-break plan because it will help dealers during December, “their most important month” for sales. But according to Edmunds data, December ranked sixth over the last six years in terms of sales, trailing the late spring and summer months.

It’s still an important month for sales, though. Caldwell noted that buyers often like to fish for year-end deals, and there’s always that lure of putting a new car under the Christmas tree.

-- Martin Zimmerman