Apr 012009

This post is a bit off-topic for me, but as I recently bought a CPO (certified pre-owned) car, I was directly impacted, and admittedly I am slightly bitter.

Have you heard of Obama’s special 2009 tax break for new car purchases? It allows people to deduct state, local and excise taxes on their 2009 tax returns.

Here’s my beef.

If the deduction is primarily intended to help struggling US auto makers, then why make the credit applicable on imports as well? Since domestically produced cars cost less on average, the consumer benefit in absolute dollar terms will on average be greater for foreign car purchases.

If the deduction is primarily intended to stimulate consumer demand, then why make it applicable only on new cars? Relative to disposable income, the deduction is more meaningful to lower income individuals and families – who are more inclined to purchase a used car – than Americans buying $50,000 luxury sedans and SUVs (Note: $50K is the threshold where the tax benefit ends). And since relief is on a percentage basis, including pre-owned cars would not likely discourage discerning consumers from spending a premium on a 2009 model.

Aside from these arguments, if consumers deem the credit meaningful enough so as to alter their buying behavior and upgrade from used to new, used/new car inventory would go out of balance (esp. given heavy discounting on new cars today). If used car inventory levels creep up, automakers will lose pricing power on new vehicles. Naturally, the market would correct for this, deflating used car prices until the balance is restored. Unfortunately, the burden ultimately falls on the consumer, who now collects a lower price for his used car when he looks to trade it in to the dealer or sell it to a private party.

Mar 062009

At this point, is a single American adult unaware of how the economy is doing? You’d have to live under a rock somewhere not to be up to date. And it may not even be that easy, as there might be access to a WiFi hotspot under the rock. As always, we have the media to thank for the dreary play-by-play. The news gets worse by the day, and the stock market continues to plunge to new lows.

Then, once every few weeks or so, Barack Obama or one of his cronies addresses Congress or the Nation (formally or informally). They try to inject some hope into an otherwise dismal picture, Americans feel a sense of solidarity for an evening, only to wake up the next morning to the “doom and gloom” all over again. News of the day: Unemployment climbed to 8.1% in February.

Obama has already done far more than his predecessors to stay plugged into public opinion and show he lives in the 21st Century. He very effectively used social media to fuel his Presidential campaign, launched a series of websites, including change.gov and recovery.gov to educate people on the programs his administration is putting to work to stimulate the crippled economy.

Despite it all, Americans want to believe Obama’s intellect and “Dream Team” staff will start turning things around in the second half of this year. Amazingly, Obama’s popularity is the highest it’s been since taking office 6 weeks ago. Are his programs really that great or do his pure intellect and the convincing manner in which he speaks deserve the credit? Are Americans in denial or feeling such a sense of desperation that there’s no alternative but to put all faith and confidence in our fearless leader, else give up hope. Or, should we attribute his favorability to a combination of these factors? No matter what the root cause, there’s no disputing that Obama’s power with the public is unprecedented, at least in my lifetime.

Question: So, what does the government do now? Answer: Launch an Integrated Marketing Campaign.

There’s no disputing that recessionary times are to a large extent, a self-fulfilling prophecy. It starts with bad news: Americans are defaulting on their mortgages and forced to foreclose on their homes. People take notice. Big name banks are incurring billions in losses and taking federal loans to avoid bankruptcy. People begin to realize this isn’t just another hiccup in the nation’s growth trajectory. There are large scale layoffs, and the stock market plunges eroding trillions of dollars in wealth. People worry they too will lose their jobs. The nation’s car manufacturers receive billions in taxpayer bailout dollars to avoid bankruptcy (only to relieve the same scenario months later). FDIC announces by year end they will run out of funds to insure the nation’s banks. People panic! It’s a downward spiral, and the more momentum it gains, the more impossible it is to stop.

If we are to prevent the economy from plummeting even further into recession, there is a window of opportunity right now. We desperately need some regular encouragement and positivity, proof points that the new government programs and spending are having an impact. I’m thinking case studies of real people and real situations that you and I can identify with. And not stuck on a website that requires people to go surf on their own. Obama needs to deliver the message to people in their homes, on their PCs, and wherever else he can grab their attention. As an added benefit, the ads can promote the websites where so much useful, yet extremely confusing and constantly changing, information lives. I mean what percentage of folks really have a clue if they qualify for a mortgage refinance at a government subsidized rate?

Some will say I’m crazy – “You think the government should use taxpayer money to buy TV ads?” Well, as a new age marketer, I obviously would recommend a disproportionate share of the spend be on nontraditional forms (e.g. social media, grassroots and viral programs), but yes, I do think broadcast should be part of the campaign. And why not? The government gave billions to GM, and it is still blowing millions and millions of it on the same old ineffective and boring car ads. So, I guess I trust Obama will be far more judicious and creative in how the ad dollars are spent. Also note, I am advocating that a marketing plan should accompany new legislation and spending, and NOT replace it.

And if Obama can be successful in pumping just enough positivity back into our spirits, what has come crashing down can start to recover. It works both ways. If people and companies increase spending even a little and the economic numbers improve slightly, the prevailing opinion will be that we’ve seen the worst. Spending will increase a bit more, and the story continues.

On the other hand, if a vehicle with the power of a multifaceted and influential ad campaign does not materialize in the near future, Obama’s popularity will diminish, the public will lose confidence, and we will be in for a prolonged depression.