General Motors' CEO Wagoner says U.S. economy needs tax cuts

February 14, 2003; Brendam Murray writing for Bloomberg reported that the tax cuts in President George W. Bush's $690 million economic stimulus package would help ensure consumer demand for cars and trucks doesn't peter out, said Rick Wagoner, chief executive of General Motors Corp., the world's biggest carmaker.

"It's clear consumers are getting a little tired of being brought into the market place by incentives," Wagoner told reporters at a speech by Treasury Secretary John Snow. "We'd love to see a more robust economy bringing people into the market, rather than frankly carrying it on our own backs."

Low interest rates and incentives helped the auto industry sell 16.8 million cars and light trucks for all of 2002, keeping the expansion going. The U.S. economy grew 2.4 percent last year, up from 0.3 percent in 2001.

General Motors was the first auto company to introduce no-interest loans to boost sales after Sept. 11. Last month, Wagoner said the company would keep using incentives because scaling them back would mean lower sales and production, reducing profitability and cash flow.

A drop in auto sales during January pushed down total U.S. retail sales by 0.9 percent, the Commerce Department said today. Outside of autos, sales rose 1.3 percent.

"Auto demand is okay, not robust," Wagoner said, endorsing Bush's call to accelerate previously passed tax cuts and eliminate the double-taxation of dividends. "We're having to push hard to keep it going and a stimulus package is very much in order now."

Business Spending

Without sustained strength in consumer spending, businesses won't begin to boost investment or hiring, Wagoner said.

"The economy for the past two years has been consumer driven and that's basically it," Wagoner said. "Until there is stronger underlying growth in the economy, business will be slower than what it otherwise would be."

Federal Reserve Chairman Alan Greenspan told Congress this week that growth should accelerate once the Iraq situation is clarified, and additional stimulus isn't needed now. Wagoner disagreed.

"The downside of not getting a stimulus package when it's needed is severe," he said. "We can afford stimulus right now. Why in the world wouldn't we do something that is good long-term policy?"

Automakers have raised incentives this month as sales are on a pace to fall 6 percent to an annual rate of 15.9 million from 16.8 million in February 2002, according to CNW Marketing Research. Sales of autos fell in January after strong demand in the last month of 2002, when General Motors had its best December 23 years.

While people will listen to Greenspan, as they "wrestle with the issue that the economy is very fragile," they will back the "insurance policy" Bush is proposing, Wagoner said.