How Obama’s plan would work


President Obama on Monday announced plans to cope with the problems facing Detroit’s auto industry. Here is a primer of the issue and how it will affect consumers.

Why does the car industry have a problem?

Essentially, fewer people bought cars from General Motors Corp., Chrysler and Ford Motor Co. As the economy went into a steep downturn, the companies had even more difficulty selling vehicles to cash-strapped consumers, who were having problems borrowing money from banks -- which had their own woes. As money problems mounted at the companies, consumers became even more wary of wanting to buy a car from a company that might not survive much longer.

If the basic problem was lack of sales, what did Obama offer consumers?

Obama on Monday outlined several ways to ease buyer anxiety, including having the government back warranties on certain new purchases and offering tax incentives to make it easier to buy cars.


What is a vehicle warranty?

A warranty promises that the seller will repair a vehicle under certain conditions. A typical warranty protects the engine for a certain number of miles.

If GM or Chrysler is no longer able to honor its warranties, Obama said the government would stand behind it. The idea has also been pushed by some in Congress.

How would it work?

According to the White House, a separate account would be created, funded by the manufacturer and a loan from the government, to pay for repairs covered by the warranty on each new vehicle sold by a participating domestic auto manufacturer during its restructuring period.

If a participating company fails, a program administrator working with the government would choose an automotive service provider to do the repairs covered by the warranty.

What other programs are available?

Obama said the Internal Revenue Service would start a campaign to tell consumers of an existing program that could save buyers “hundreds of dollars and lead to as many as 100,000 new car sales.”

Under this program, passed as part of the federal stimulus package, anyone buying a new car from Feb. 16 to the end of the year may be eligible to deduct sales or excise taxes from the income taxes. On a $20,000 car, a 10% sales tax could add as much as $2,000 to the final cost. Depending on which tax bracket the buyer is in, a portion can be deducted.


Is there a plan for a tax credit for cleaner cars?

Obama said he would work with Congress to create a “generous credit” for consumers who get rid of older, less fuel-efficient cars and buy newer, more efficient cars. Similar plans exist in some European countries, the president said.

No numbers were immediately available, but Obama said the plan would be made retroactive to Monday if passed by Congress.

What else will the government do?

Obama said he would seek to accelerate the purchase of government fleet vehicles to help increase sales. He also noted that the government was working to ease the credit crunch so that more people could borrow money to buy cars.


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