SAN FRANCISCO â€“ About 130 millions Americans soon will get tax rebates intended to spur spending, but only about a quarter of the money will go towards that, if history proves correct.
So says Emily Kolinski Morris, a senior economist atMotor Co., citing what happened when the federal government issued a similar tax rebate seven years ago.
â€śAn estimated 25% of rebate checks were spent in 2001, and that is expected this time around, too,â€ť she says at a Consumer Bankers Assn.â€™s auto finance conference here.
She cites a survey taken this year indicating 43% of Americans will use the money to pay off debts, 26% will save it and 24% will spend it.
That leaves one banker at the conference torn.
â€śAs an automotive lender, do I want people to take the money and pay off debt or take it and buy a car?â€ť says Nicholas Stanutz, senior vice president of the Huntington National Bank. â€śI have mixed feelings.â€ť
A 25% spend rate of the funds would raise real gross domestic product growth by about a half a percentage point for the year. But if the money used for debt payments make room for additional spending, the full-year impact approaches a full percentage point, Morris says.
â€śIt does have a meaningful effect on growth,â€ť she says of the rebate program. â€śIt is designed to smooth out growth so other actions, such as interest rate cuts, take effect.â€ť
The rebates will range from $300 to $600, or $1,200 for married couples, plus $300 for each dependent child.
The 2001 rebates widely were credited with curtailing that yearâ€™s recession.
â€śStudies show temporary tax rebates have a near-term effect on economic growth but that fades after the checks are distributed,â€ť Morris says.
Not particularly good for consumer spending in general and car buying in particular is that Americans are spending more of their disposable income on interest payments for loans.
â€śThat went up 14.3% in 2007, and itâ€™s a significant increase,â€ť Morris says.
Another hindrance to major consumer spending is a tightening of credit standards by banks, making it more difficult and more expensive to finance big-ticket purchases, such as vehicles.
â€śThat is one of the biggest uncertainties when you look at growth in coming months,â€ť Morris says of the credit pinch due in part to deteriorating credit market conditions.
Rising gasoline prices usually donâ€™t hurt vehicle sales, â€śbut do affect segmentation,â€ť she says, citing a downturn in light-truck sales and an upturn in cross/utility vehicle deliveries.
U.S. light-vehicle sales totaled 16.1 million units in 2006.and others originally forecasted auto-industry sales of about 15.7 million units this year.
But that remains under review as conditions develop, Morris says. â€śIf anyone can accurately predict that number, we have a job for you at Ford Motor Co.â€ť
She declines to predict when the industry might see sales exceed 17 million units again. The last time was 17.1 million in 2001, following 17.4 million in 2000.
â€śThe industry sold a lot of cars at the beginning of the decade,â€ť she says. â€śYou could say it was a bubble. But by 2010, a lot of those vehicles will come back as scrappage and cause replacement demand.â€ť
Thatâ€™s â€śa good underpinningâ€ť for strong auto sales in the near future, Morris says.