Will the Fiscal Cliff Drive Car Sales off the Edge?

Here we go again.
Imagine if a car dealership operated like the U.S. Government. There would be fractious politics in the showroom, infighting in the BDC, endless preening and pouting by sales managers and fixed ops employees…and nary a car sold or serviced. 

 Thank goodness that’s not the case. As for the government, the games continue with the Fiscal Cliff looming in just over 30 days — and it seems a sure bet that U.S. consumers and businesses will once again be left scratching heads. Fact is, with the economy just now beginning to chug ahead with considerable steam, now would be a good time for a deal, because one way or another failure to reach an accord will have a negative impact on the nation. Here’s what all the fuss is about: 
1. On January 1, 2013, Bush-era tax cuts will expire.The tax cuts due to expire include personal tax rates, Capital Gains and Dividend rates, and Estate taxes. So everybody loses if the tax cuts are allowed to expire without a deal in place. 
 2. If a budget deal can’t be reached in time, sequestration will activate, which is a fancy way of saying automatic budget cuts to social services, the military — pretty much across the board. All told, automatic budget cuts of $1.2 trillion will activate if we plunge. 
According to factcheck.org, if you put it altogether it’s a mix of $560 billion and the result, according to the Congressional Budget Office,“will lead to economic conditions in 2013 that will probably be considered a recession.” 
 Taking the Plunge 
That’s bad. But will it keep people from buying and servicing cars? According to Edmunds.com, it very well could be like a cold plunge to a hot industry, especially in the first quarter of 2013. Chief economist and auto researcher at Edmunds, Lacey Plache, has said that it could impact sales by as much as 20 percent, driving sales down to an annual rate of 12 to 13 million cars, and that the greatest pain would be in the first quarter.

Others aren’t as worried, and they have good reason for optimism: The auto industry’s strong 2012 growth is fueled by pent-up demand to replace older vehicles and to buy more fuel efficient cars. Since 2008, many people have pushed off buying a car, and the age of the U.S. consumer fleet has reached almost 11 years. That’s a bunch of old jalopies on the road, meaning that for many, purchasing a vehicle or fixing the one already in the driveway is no longer a want, but a certified need. 

This, combined with low interest rates and easing credit, might mean that many consumers will continue to visit car lots regardless of an increase in taxes, simply because they have replace the car they own. For proof of that, consider this year: sales have flourished while the rest of the economy has spluttered, probably because, at the end of the day — more people just flat out need to buy a car.

And there’s one more reason for optimism — at least for the here and now. Politicians being keen on self-preservation, if they can’t reach a deal it’s a safe bet that Congress and the White House will just kick the can a little farther down the road. 

 –Brian Chee 

Source: Detroit News, USA Today, CNW

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