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Auto industry subsidies are piling up

Cars manufactured by General Motors, which include Cadillacs, Pontiacs, GMC and Saab's, wait for buyers at a dealership in Los Angeles.

TEXT OF STORY

Kai Ryssdal: The Obama administration announced today that it's expanding a sales-tax deduction for people who buy new cars. Earlier this week, the House approved a plan to give drivers up to $4,500 for trading in their old clunkers for more fuel-efficient models. That's all on top of the billions General Motors and Chrysler are already receiving directly. So we asked our senior business correspondent Bob Moon to total up the subsidy sticker price.


BOB MOON: Maybe you've turned on the radio lately and heard the news:

RADIO AD: Buyers of new cars can deduct the sales tax even if they don't itemize! This break applies to vehicles purchased before next January! Sales tax on the first $49,500 is deductible!

Add to that the so-called "Cash for Clunkers" program making its way through Congress, and what's the price tag for taxpayers?

Sean McAlindin is chief economist at the Center for Automotive Research in Ann Arbor, Mich. We asked him for a rough guess.

Sean McAlindin: The sales tax deduction in a $10, $11-million market could be worth $4 billion. And the Cash for Clunkers, if used for anywhere from 900,000 to 1.2 million vehicles, could be in the area of about $3 to $4-billion extra. So, maybe anywhere from $7 to $8-billion.

McAlindin is quick to point out the purpose of all that money isn't just to subsidize Detroit and new car buyers. He says the benefits could ultimately outweigh the cost.

MCALINDIN: The job impact could be up to 120,000 additional U.S. jobs within 12 months. Obviously that would bring back some of the tax revenue, so it's possible the net effect could be pretty close to zero.

That will depend, of course, on how successful these programs actually are. But at the National Automobile Dealers Association, spokesman Bailey Wood says a version of the Cash for Clunkers idea is already proving itself overseas.

BAILEY WOOD: The program over in Germany is going, literally, gangbusters. The dealers are having great difficulty keeping up with demand because of it.

Wood argues with new car purchases accounting for 20 percent of all retail sales in this country, these kinds of incentives are just what the economy needs.

I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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