A Vue With Some Room

Whenever I write something not particularly flattering about U.S. automakers, I find myself promptly inundated with reader emails -- some of them even printable in a family publication. "Why don't you report the good news?" people ask. And I answer: "As soon as there is some, heck, yeah, I'll write about it." Well, let the bells ring out in Mudville, folks. I've finally got something nice to say about Detroit.

A couple of weeks ago, the weekend edition of The Wall Street Journal ran its regular column on a particular car of particular interest. This particular week, it was the Saturn Vue Green Line, a hybrid SUV manufactured by GM (NYSE: GM  ) , that caught the Journal's eye.

For years now, it seemed Detroit could do nothing right. If it wasn't cutting production, it was losing money on what it did produce. If it wasn't selling enough cars, it was practically giving them away with absurd financing terms. Perhaps the ceaseless stream of bad news has made the Journal jaundiced when it comes to writing about GM, but I must say I disagree with its opinion that the Green Line is "a scaled-down hybrid," a "compromise," and a "half-step."

If you ask me, this "half-step" is just what the doctor ordered. Sure, the Green Line uses dated hybrid technology. It's not as fuel-efficient in the city as are hybrid SUVs from Ford (NYSE: F  ) , Honda (NYSE: HMC  ) , or Toyota (NYSE: TM  ) . But consider the Green Line's strong points. When compared with its competitors, its base price of $22,370 beats its cheapest SUV rival, Ford's Escape hybrid, by a good $3,000, and is just half the price of a top-of-the-line Lexus RX 400h. Moreover, although the Green Line falls short of its rivals on city-driving fuel efficiency, it beats all comers on highway mileage (32 mpg, according to EPA estimates) -- and it does this while providing better towing capacity and more horsepower than the Escape.

None of which, however, touches on the real reason why I think GM's Green Line is going to be a success story for the Detroit automaker. For that, you need to turn to the U.S. Internal Revenue Code or (for the Cliff's Notes version) to a column I wrote back in January, titled "Detroit's Stealth Subsidy." You see, starting this year, the IRS is giving away tax credits to buyers of hybrid automobiles. The credits range in value from $250 to $3,400 and are an improvement on the tax deductions that were offered in years past. But there is a catch.

Each carmaker has a quota attached to it. Only the first 60,000 buyers of any given company's cars get to claim the full credit, which means that right about now, Toyota and Lexus buyers are running up against their quota, and Honda buyers are eyeing their own quota warily. But Ford and GM have a veritable cornucopia of quota slots for the taking. Because Ford came late to the hybrid game, it doesn't make enough hybrids for its tax-credit quota to run out any time soon. Because GM comes later still, it too has quotas aplenty.

Long story short: thanks to the U.S. Congress, Toyota and Honda hybrid shoppers are about see their expected tax credits start disappearing. For many, that might push them to another brand. And to whom will they turn for a cheap hybrid SUV, fully loaded with the optional tax credit package? GM.

Not sure why a credit isn't a deduction, or vice versa, but afraid to ask? Drop by the Fool's own Tax Center and learn more than you ever wanted to know about the Internal Revenue Code.

What type of investor are you? Talk stocks with other investors and our analysts when you give our newsletters a try.

Fool contributor Rich Smith does not own shares in any company named above.


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