Analysts suggest government auto money go direct to buyers

— -- Two auto analysts suggest that spending some government auto aid money for direct-to-consumer incentives could boost sales and benefit the whole industry.

They say the government could provide discount vouchers for new car buyers, as is successfully being done in Europe, or could underwrite the costs of a federal version of South Korean automaker Hyundai's successful Assurance Plan.

The key benefit of either plan: "The government fund would support the entire industry, allowing customers to buy what they want," says Itay Michaeli, auto analyst at Citi Investment Research.

It would also be cost-effective, he says. A federal program similar to Hyundai's incentive would tap what could be pent-up demand for new cars among buyers numbering in the millions for $5 billion or less, he says.

General Motors GM and Chrysler are surviving on $17.4 billion in federal loans, and an Obama administration task force is weighing whether they will get $21.6 billion more they're seeking.

Under the Hyundai plan, you can return the car if you lose your income because you're laid off or for other specified reasons. Hyundai will cancel the loan, even if you owe more than the car's worth, and won't put a black mark in your credit file. It also, currently, will forgive three payments while you look for work before the car has to come back.

"We eat the negative equity, up to $7,500, which covers most of our business," says Dave Zuchowski, vice president of sale for Hyundai Motor America.

He says Hyundai buys insurance on each car sold to cover possible losses.

Michaeli suggests a government program cover negative equity up to $10,000.

The other plan, usually called scrappage, provides government discounts for new car buyers if they trade in old cars to be scrapped. It is currently being done in several European nations, and its value is seen as not only improving car sales — helping automakers, dealers, parts suppliers and lenders — but also retiring older vehicles that pollute more, use more fuel and are less safe.

Such a plan "could turn the (U.S.) auto industry around in a year," says Joseph Barker, sales forecaster at consultant CSM Worldwide. "It would have an immediate, stimulating effect on auto sales."

CSM figures new vehicle sales in the European countries with such plans will be 400,000 more this year than they'd be without the incentives.

Barker says a scrappage plan discussed but not included in the U.S. stimulus bill would have given discounts up to $4,500. "On top of incentives by automakers, that (would be) powerful" and could boost sales by a million in the second half of this year, and 1.5 million to 3 million next year, he says.

Auto sales this year are running at an annualized pace of less than 9.5 million. Automakers need 9.5 million or 10 million just to survive, says Stephanie Brinley, analyst at consultant AutoPacific.

Barker thinks a Hyundai-style plan could help, too, but not as much or as fast.

The only direct-to-consumer help in the U.S., part of the stimulus bill, lets new vehicle buyers deduct the state sales tax on the purchases next year when they file their 2009 federal taxes. That's worthless in states that have no sales tax — such as Delaware, Oregon and New Hampshire — and worth no more than a few hundred dollars elsewhere.

White House representatives did not answer e-mail requests for comment on the proposals.