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Snow Details Tax Breaks for Hybrid Cars

January 13, 2006

By Glenn Somerville

DETROIT — U.S. Treasury Secretary John Snow, aiming to boost the ailing domestic auto industry and encourage conservation, on Friday outlined details of proposed tax breaks for people who buy gasoline-electric vehicles.

At a Ford Motor Co. research center in Detroit, Snow discussed tax policy changes that would give people who buy or lease increasingly popular hybrid cars and trucks a tax credit of up to $3,400.

“Development and use of hybrid vehicles is a key step toward reducing gasoline consumption, emissions of air pollutants and greenhouse gas emissions,” Snow said in a statement.

The credit was initially announced in Washington as part of an energy bill signed into law in August but it applies to vehicles that were put into service after January 1.

If an individual or a business bought more than one vehicle, each would be eligible for the tax credit.

The credit could also apply to vehicles that use other alternative-fuel technology, such as fuel cells that convert chemical energy into electricity, though that is less commonly available than hybrids.

As big carmakers like Ford and General Motors Corp. struggle to cope with high health care costs and pensions while foreign producers steadily take market share, any tax break that potentially helps sales is eagerly sought by Detroit.

Choosing Detroit to highlight the tax credits reflects its continuing status as the United States’ “motor city,” but the industry’s glamour has faded as layoffs mount and carmakers restructure to try to compete with foreign producers.

Snow was asked at a press conference whether Washington has some obligation to help auto companies handle their surging costs, perhaps through some type of bailout.

“Auto companies are a lot better than the federal government at working through cost structure issues,” Snow replied.

“There’s not an awful lot of expertise on management of auto issues in Washington DC,” he added.

GM is cutting jobs and closing plants in the United States and Canada in a bid to save $7 billion by the end of 2006.

Ford also plans to close plants and cut jobs as part of a restructuring announcement to be made next week.

The tax credits will be phased out for each manufacturer once that company has sold 60,000 eligible vehicles.

Snow earlier toured the Detroit auto show, a showpiece for new models and “concept cars” from carmakers around the world, including, for the first time, China.

Ford has been making a push to increase its presence in the hybrid market. The company is aiming to raise its global production of more fuel-efficient vehicles tenfold to 250,000 a year by 2010 and wants to double its hybrid vehicle team even as it is laying off staff in other departments.

Ford currently offers two hybrid models, the Escape and the Mercury Mariner, but the fastest-selling hybrid has been Toyota Motor Corp.’s Prius.

Overall, there were eight hybrid models on offer to U.S. buyers in 2004, when 87,000 of the cars were sold, according to market analysis firm J.D. Power and Associates. Last year, 11 models were on offer, it said.

One of Treasury’s roles is the nation’s tax collector. Ahead of the mid-April deadline for filing personal income tax returns for 2005, Snow likely will have several announcements about tax breaks for businesses and individuals.

(Additional reporting by Kevin Krolicki and Poornima Gupta in Detroit)


Source: reuters



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