Obama backs consumer incentives to boost auto sales

WASHINGTON (Reuters) - President Barack Obama ordered tough steps on Monday to restructure General Motors and Chrysler but he also offered incentives and other plans to boost sales and reassure consumers.

“We must also recognize that the difficulties facing this industry are due in no small part to the weakness in our economy,” Obama said in announcing several steps to invigorate sales that are near 30-year lows.

Detroit and top overseas manufacturers are expected to report a severe decline in U.S. sales for March, continuing a trend that has accelerated this year as the recession deepened and consumer credit woes worsened.

Manufacturers have responded with zero percent financing, cash rebates, and deep discounts to lure consumers with little success.

The centerpiece Obama incentive is proposed legislation that would give consumers a voucher worth between $3,000 and $5,000 toward a new, fuel efficient car in exchange for a poorer performing older model.

The program, which was scuttled in Congress last year, has been credited with turning around sales in Germany and elsewhere in Europe. But the plan would cost billions and Obama and congressional supporters would have to find a way to fund it.

“Even the most dramatic of restructurings will only help the auto companies if more Americans decide to buy cars,” said Sen. Charles Schumer, a New York Democrat and member of the Banking Committee.

“For Americans who have an inefficient clunker sitting in their driveway, our bill would provide a better trade-in offer than they could get from most car dealerships,” Schumer said, hoping that Obama’s endorsement will help the measure move quickly through Congress.

The Obama administration also is planning to accelerate the purchase of fuel efficient vehicles for the federal fleet using economic stimulus money, and further aid auto finance companies to stimulate lending.

Separately, Obama said the IRS, would immediately begin alerting consumers of a new program that allows consumers to deduct sales taxes when purchasing a new car.

To reassure consumers wary of purchasing a vehicle from a financially distressed company, Obama said the government

would underwrite warranties beginning on Monday.

“Let me say it as plainly as I can, if you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warranty will be safe,” Obama said.

Reporting by John Crawley; editing by Carol Bishopric