How to triple GM Volt sales with a lead brick

In the United States, from an accountant’s viewpoint, which makes a better new pizza deliveryvehicle for a small business: a Chevy Volt or a Chevy Tahoe?

The Volt MSRP is $39,145, the Tahoe $39,080.

The Volt costs approximately 6 cents of energy per mile to run; the big SUV 25 cents a mile (EPA 98 MPG vs. 15 MPG city).

Although both are GM products, the Volt has a better warranty and is also proving to be much cheaper on maintenance, requiring far fewer oil changes per miles driven than the big V8-powered SUV.
 

 

As a bonus the Volt is eligible for a Bush-era EV tax credit of $7,500.

You might think that the answer is shaping up to be a no brainer in favor of the Volt. The Volt is cheaper to buy, and is 1/5 the cost to run. It is also better suited to an urban environment, and as a bonus gives any business an instant environmentally friendly image.

But thanks to the often loopy U.S. tax code, specifically section 179, depending on your small business need for an immediate tax write-down, the SUV is the clear winner. This is because under section 179 you can write off $25,000 for the Tahoe versus only $11,060 for the Volt in the first year.

This is due to the U.S. tax codes massive incentive to small businesses to buy a vehicleweighting more than 6,000 pounds. Weight is the deciding factor. The Volt weights 2,220 pounds below this arbitrary limit; the Tahoe a few pounds above the limit. This incentive makes the SUV the accountants pick by a country mile ($6,000).

Several years ago, when this incentive was north of $75,000, Section 179 was often referred to as the “SUV Tax Loophole” or the “Hummer Deduction.” Many small business owners used this tax code to completely write-off the purchase of qualifying vehicles at the time (like Hummers). That’s TEN TIMES the current EV tax Credit of $7,500. Worse it encouraged businesses to buy grossly inefficient high running cost gas guzzling monsters like the Hummer. During the last few years that particular benefit of Section 179 has been reduced, but still sits at $25,000. (See “Vehicles & Section 179″ for current limits on business vehicles ).

For a list of other popular vehicles whose sales are still buoyed (some might say solely) by the section 179 tax break see Section129.org.
 

 

Some of the vehicles eligible for this tax break have greater sales each month than all current 2012 electric vehicles sales combined.

Having dueling incentives, one encouraging small business to hobble themselves with an inefficient heavy SUV, the other encouraging the purchase of a new efficient Electric Vehicle reveals a schizophrenic U.S. tax system. It is also a business incentive system that is heavily biased against fuel efficiency.

This bias is out of step with a fragile U.S. economy struggling under the burden of expensive foreign oil imports and an inefficient transportation system. Providing an incentive for business’s to purchase a new gas guzzling SUV over an EV that could do the same job isn’t just loopy, it’s counter to current U.S. energy policy.

Some small business owner are buying Volts anyway. Their business strategy appears to be to purchase a Volt personally and then charge back “Business miles” driven. The IRS lets you deduct business miles driven in your personal car, at a rate of 55 cents per mile. That figure is based on inefficient gas-guzzlers, so it can really work to the Volt owner’s advantage.

Assuming that it is too costly politically to take a meat clever to the section 179 sacred cow, one solution could be to synchronizing and equalize these dueling incentives. This could be done by providing an exception to the 6,000-pound minimum weight limit if the vehicle in question meets the same eligibility requirements for the EV tax credit. An added benefit could be the reduction in the EV tax credit payouts by restricting it to consumers only. This would both level the incentive playing field for small business vehicles, and save the U.S. taxpayer some money.
 

 

Its impact on EV sales, especially the pack-leading Volt, could be dramatic. Capturing even a fraction of the current section 179 incentivized sales could triple current EV sales.

Allowing the same tax deductions for a business purchasing a Volt that is allowed for a business purchasing a Tahoe, Silverado, or a Mercedes SUV is also good for long-term business efficiency and overall American economic competitiveness.

Until the political will can be found to simplify the U.S. tax code, there is something GM can do today. GM could dramatically improve Volt sales to small businesses by adding 2,220 pounds of lead lining (26 88-pound lead bricks) to the Volt. This would make it weight more than 6,000 pounds and allow the Volt to qualify for the section 179 maximum $25,000 write down. They can market it as a business option add on for the currently radioactive small business environment. I recommend calling it the section 8 option, or Volt S8 for short.

Source: GM-Volt.com

GMAC Needs More Bailout Funds Claims Fed

How do you feel about banks that receive free money so they can stay afloat? Usually, this forum focuses on alternate energy vehicle developments and technological advancements, but when we find out that GMAC is standing in line with their hands out, it tends to provoke our ire.

GMAC is notorious for their 0% interest loans and they use this marketing tool to entice consumers to purchase big gas hogs they could not otherwise afford. Vehicles like Tahoes and Yukons and Escalades and Hummers with bloated price tags and pathetic mileage ratings are scooping up the free money from GMAC that you and I ultimately get the tab for. Maddening.

From Automotive News:

GMAC Financial Services, which has received $12.5 billion in federal aid, is negotiating for a fresh infusion of taxpayer funds because it has not raised enough capital to survive a deepening recession, the Federal Reserve said.

The auto lender is the only one of 10 large banks ordered in May to raise capital that had not met its goal, the Fed said Monday.

"The one exception, GMAC, is expected to meet its remaining buffer need by accessing the TARP Automotive Industry Financing Program and is in discussions with the U.S. Treasury on the structure of its investment," the Fed said in a statement.

The U.S. Treasury and Fed ordered the banks to take stress tests last spring in a bid to reassure jittery investors that they would be able to withstand a deepening recession.

GMAC was ordered to raise $11.5 billion in the six months following the stress test results in early May, with a deadline of Monday. The firm quickly received a $7.5 billion federal capital injection and has sold U.S.-backed debt. The investment came on top of emergency government aid GMAC received in December to keep it out of bankruptcy.

GMAC has indicated it will need less funds than were expected at the time of the tests in May, the U.S. Treasury said Monday. Department officials have said they knew it was likely the government would need to contribute more capital to GMAC because as a privately held firm, it had little ability to sell shares.

GMAC's owners include General Motors Co. and private-equity firm Cerberus Capital Management. Among other lending, it provides financing to buyers of vehicles made by GM and Chrysler Group -- two automakers partially owned by the government after their federally sponsored bankruptcies earlier this year.

Worse than ‘adverse’?

Regulators had told the banks to increase capital based on projected losses under various economic scenarios, including one labeled "adverse" that envisioned a 10.3 percent unemployment rate next year.

But joblessness may already be exceeding that level. On Friday, Labor Department data revealed a 10.2 percent unemployment rate for October, and the White House said it would likely rise further before the jobs picture improves.

Nonetheless, the Fed said the stress tests were designed to ensure that the banks would stay sufficiently capitalized through 2010 and continue lending to creditworthy borrowers. The tests calmed investors enough to draw new investment into banks and sparked a stock market rally over the summer months.

The Fed's announcement that GMAC was still negotiating for government capital comes four days after Treasury assistant secretary Herbert Allison said the Treasury Department needed more deliberation over the structure of the investment and it might be delayed past the Monday deadline.