Congress Agrees to Cut Auto Sale Tax Break

One step forward, two back. We had a pretty good incentive to buy a new car but negotiators on Capital Hill decided to strip off the tax refund for the interest paid on the loan. Bummer. I am old enough to remember the days when you could deduct the interest paid on credit cards. Boy, that was nice and let me tell you I had a nice refund every year!

The legislation will now be written such that a car buyer can only get a credit for taxes paid. This reduces the size of the overall bill somewhat and drastically reduces the amount our Government needed to pay for this perk. What I do not understand is why the lawmakers are concerned about $20 billion dollars or so when the entire package will be $785 billion? These numbers are so staggeringly huge that it really doesn't matter if the stimulus bill is $900 billion or $800 billion. The US has 0 billion so all this money will be created out of thin air and cause inflation.

I digress, so here is the story from Automotive News:

A proposed tax break for new-vehicle buyers is dramatically scaled back in the final version of the economic stimulus bill.

Auto dealers and their allies had sought to make interest on auto loans and the sales and excise taxes on new-vehicle purchases deductible from federal taxes. Proponents say those measures are needed to boost showroom traffic and sales.

But the final stimulus bill -- a compromise between House and Senate negotiators -- makes only sales and excise taxes deductible. The loan interest provision was dropped, a spokeswoman for Sen. Barbara Mikulski confirmed today.

Sources said the trim in the tax break for new-vehicle purchases reduced its cost from about $11 billion to about $2 billion. Congressional negotiators sought to limit the cost of the stimulus bill to pacify lawmakers worried about spending.

Mikulski, D-Md., sponsored the original provision on vehicle purchases at the request of dealers. The spokeswoman said Mikulski considers the deduction for sales and excise taxes an important victory.

Final vote as early as Friday

In a statement Mikulski estimated that a family buying a new car will cut its federal taxes $300 to $600.

The National Automobile Dealers Association first called for the broader tax break last November.

The association maintained today that even the scaled-back tax break promises to boost vehicle sales.

"Anything that can help get consumers back into dealership showrooms can also help stimulate an economic recovery," said David Regan, NADA's vice president of legislative affairs.

The stimulus bill now calls for $789 billion in tax cuts and new spending. The House and Senate could vote to approve the bill as soon as today or tomorrow.

President Barack Obama says the bill is needed to prevent a further collapse of the economy and to create or preserve as many as 4 million jobs.

Wade Newton, a spokesman for the Alliance of Automobile Manufacturers, said today that more must be done to get consumers interested in buying vehicles. He said he expects industry groups to look for other legislation to accomplish that goal.

Ford is Blowing Through Cash Like There is No Tomorrow

The Ford Motor Company has some great products on the horizon that can make a huge difference in the auto industry. The question is, "Will they last long enough to get them to market?" In the fourth quarter alone, they burned up $5.5 billion. They have not been profitable for years and they are nearing the end of their cash reserves. How can they possibly survive without government aid? I have no idea, how about you?

From Automotive News:

Ford Motor Co., the only U.S. automaker operating without federal loans, burned through $5.5 billion in cash during the final three months of 2008 as losses mounted.

Ford finished the year with cash reserves of $13.4 billion. The company said it is drawing down $10.1 billion in available credit lines immediately because of concerns about unstable capital markets and the uncertain economy.

Ford reported a net loss of $5.9 billion for the fourth quarter, compared with a loss of $2.8 billion a year earlier, capping its third straight year without a profit. The pretax operating loss, excluding special items, was $3.7 billion, compared with a loss of $620 million during the same period in 2007.

"Ford and the entire auto industry faced an extraordinary slowdown in all major global markets in the fourth quarter that clearly had an impact on our results," CEO Alan Mulally said in a statement.

Some analysts say Ford needs at least $10 billion on hand to run its operations. At the fourth-quarter cash burn rate of $1.83 billion a month and not considering other steps, Ford was on a pace to cross that threshold by the end of February.

CFO Lewis Booth said today that won't be the case, because the company's expects to deplete its cash reserves more slowly this year.

"We look at our burn rate every day, Booth said. "We are confident that our burn rate will substantially slow in 2009, including in the first quarter."

Adequate liquidity

Ford said it has adequate liquidity and is taking steps to bolster it, including the conversion of a temporary asset account with the UAW. Discounting any cash used during January, the company's cash reserves now stand at about $26 billion.

"We are not drawing the revolver to fund operations; we are not drawing the revolver to stay above mininimum cash levels," Booth said. "We're drawing it because we think it's the prudent thing to do given the uncertainty of the financial markets."

Ford's revenue plunged 36 percent to $29.2 billion during the fourth quarter as U.S. auto sales dropped to quarter-century lows amid the longest recession since the early 1980s.

In December, Ford told Congress it doesn't plan to post a profit or break even on its worldwide or North American auto business until 2011.

Ford burned less cash in the fourth quarter than it did in the July-September period, when it went through $7.7 billion. Ford finished the third quarter with $18.9 billion in gross cash.

Ford had $10.7 billion in available credit lines at the end of the third quarter. That number was reduced to $10.6 billion when one credit line expired and wasn't renewed. The remaining $500 million in available credit is already pledged, but not drawn.

In December, Ford asked Congress for a $9 billion credit line, but said it would only need to use it if the economy worsens.

The $10.1 billion Ford is drawing today should arrive in company accounts by Tuesday.

Annual loss

Ford's full-year net loss was $14.6 billion, compared with $2.7 billion in 2007. The annual operating loss widened to $6.2 billion from $1.1 billion.

For all of 2008, revenue fell to $139.3 billion from $173.8 billion.

With losses mounting, Ford is accelerating restructuring actions. The company announced today it would trim 20 percent -- or 1,200 jobs -- from the U.S. operations of its Ford Motor Credit unit.

Ford Credit reported a net loss of $1.5 billion in 2008, following a profit of $775 million in 2007.

Ford's automotive operations lost $3.3 billion before taxes during the fourth quarter. The North American unit lost $1.9 billion before taxes. In Europe, Ford posted a pretax automotive loss of $330 million.

U.S. rival General Motors has received $9.4 billion in loans so far, part of a $13.4 billion package granted by President George W. Bush. Chrysler LLC has received $4 billion and says it needs at least $3 billion more