Demand increase in '06 due to tax credit?

Do you think that demand will increase for the Toyota Prius during the first 6 months of 2006, in no small part due to the substantial two part tax credit?

I think it might, due to pent up demand from those that knew of the forthcoming tas credit in late 2005 and postponed their planned Prius purchases until after the first of the year.

Of all the cars that qualify for some portion of or combination of either the Fuel Economy Credit and/or the Conservation Credit, it appears that qualified purchasers of the Prius stand the most to gain in obtaining the maximum amounts of Tax Credit offered, which estimates have ranged from a low of $2,750 to a high of $3,400... with the most experts calculating around $3,150.00.

That's in tax credits, not tax deduction. A huge increase over the $2,000.00 tax deduction offered in 2005, which in my tax bracket only would have netted to a $300 tax benefit. The approximate $3,150.00 tax credit for 2006, however nets to a $3,150.00 tax benefit for me, assuming no liability for AMT.

This is huge!

And it is time limited!

The full credit can only be expected for the first 2 calender quarters of 2006. By summer, the tax credit could be reduced by 50%, and by fall or winter, it may be reduced by 75%. By spring of next year, no credit period.

To elaborate further on the credit limitation, this is due to the language of the Energy Bill which sets forth a "phase out" period, and also sets a cap on the total vehicles sold per manufactuer that can qualify for the credit.

Essentially, the "phaseout" period begins with the second calender quarter following the calendar quarter where Toyota exceeds 60,000 qualified units sold.

(See Energy Tax Incentive Act of 2005, Subtitle D- Alternative Motor Vehicles and Fuels Incentives, Section. 1341. Alternative Motor Vehicle Credit, Paragraph (f) Limitation on Number of New Qualified Hybrid and Advanced Lean-Burn Technology Vehicles Eligible for Credit, Sub Paragraph (2) PhaseOut Period...)

Since Toyota manufactures not less than 3 popular Hybrid vehicles (the Prius, the Highlander, and the Lexus 400h), and is soon to introduce a fourth hybrid (the Camry), it appears that the 60,000 unit mark of qualified vehicles will very easily be reached or exceeded before June, 2006.

{To put vehicle unit building numbers in perspective, Ford manufactures about 350,000 F-series trucks a year.}

Toyota seems to anticipate reaching the 60,000 unit mark relatively quickly, since on the Hybrid Vehicle Tax Credit page on their website, they caution purchasers to be aware that "hybrid tax credit amounts will begin to be reduced for deliveries... after either June 30, 2006 or September 30, 2006."

It is easy to see that the either June or September reduction is directly the result of the language of the new law, which applies reductions after the second quarter following the quarter in which the first 60,000 qualifying units are manufactured.

So to get the full credit, get the Prius as soon as you can. There is a very clear sunset for this credit, especially for Toyota, which offers more qualifying cars than any other manufacturer.

I called my dealer at home on his cell phone at 9:30 AM on New Year's day! By January 2, we had a deal on the exact Prius I wanted, right color, right package, at a couple hundred dollars below MSRP. The bank didn't open until Jan 3, but by that evening, I had my Prius bought and hiding at a neighbor's house. On the morning of Jan 4, I presented it as a surprise gift to my wife.

She had needed a new car for the last 6 months, but thanks to the internet and forums like this one, I learned about the then only proposed tax credit laws discussed in this post. I postponed my purchase until the first eligible day, and then got right on it.

If it weren't for forums like this, I'd have never known of this benefit. Now that I have benefited, I just wanted to pass along the information to others, so they too can act with precision, and not get caught hearing about it when it's too late.