President Obama's proposed Fiscal Year 2013 budget includes a new provision for hybrid and electric car tax credits that would broaden the program, increase the rebate in some cases to $10,000 and change the way the money is doled out.
It's part of the president's plan to put one million electric and hybrid vehicles on the road by 2015. Currently, hybrid and electric-car buyers can get a $2,500 to $7,500 rebate, depending on the size of the car's battery. The bigger, more innovative the battery, the higher the tax rebate.
The tax credit also broadens the range of cars that would be eligible for the rebate. And it eliminates a rule that caps the number of cars eligible for the credits by manufacturer. Under current rules, buyers of popular vehicles like the Toyota Prius sometimes don't qualify for the tax credit because the automaker has already sold too many qualifying cars.
The moves "will help increase production of advanced vehicles that diversify our fuel use and bring down the cost of producing such vehicles," the proposed budget said.
There's another change in the plan that may end up benefiting car dealers and not consumers. The tax credit will go directly to the person selling the car, not the person buying the car; dealers will then ostensibly pass the savings on to consumers. The Obama administration says that change will help streamline the process and will ensure consumers don't end up losing out on the benefit because they aren't sure how to tabulate it on their taxes.
The administration said dealers will be required to disclose to consumers that they've received the rebate.
Rebates for electric and hybrid cars have been controversial. While automakers have argued in favor of the rebates, saying they help stimulate demand, critics charge that the people buying those vehicles would do so even if they didn't get a financial push.
"The people who are buying these vehicles today are demographically very well off," said Jeremy Anwyl, vice chairman of consumer web site Edmunds.com. "They're buying these vehicles because they're passionate about them … They would buy these vehicles whether there was a rebate or not."
Indeed, General Motors has said the average Chevy Volt buyer makes $175,000 a year. The Volt is GM's advanced hybrid car, which operates solely on battery power for about 40 miles until a gas-powered generator kicks in to keep the engine running.
About 20 percent of Volt buyers trade in a luxury car, and another 20 percent trade in a Toyota Prius, the company said.
Nissan's all-electric Leaf also attracts a wealthy crowd: the average household income of owners is $140,000.
But there isn't huge demand for either car. Out of the 12.8 million cars and trucks sold in 2011, just 7,671 Volts and 9,674 Leafs were purchased.
"Those are miniscule numbers," Anwyl said. "If we keep focusing on pushing electric cars on people and not on making compelling cars people want to buy, that's a mistake."