To boost sales of companies such as General Motors and Chrysler which stand on the brink of bankruptcy, President Barack Obama on Monday backed an "ambitious" plan that would provide "generous" credit to buyers of new and environment friendly cars.

In announcing his plan to help two of Detroit's Big Three automakers, Obama said he would support an idea endorsed by several lawmakers -- an "ambitious incentive program to increase car sales while modernizing our auto fleet."

"Such fleet modernization programs, which provide a generous credit to consumers who turn in old, less fuel-efficient cars and purchase cleaner cars have been successful in boosting auto sales in a number of European countries," Obama noted.

Obama said he wanted to work with Congress to identify portions of a recently enacted multibillion-dollar stimulus package that could be trimmed to finance the purchase-incentive idea and make it effective immediately.

Simultaneously, the US tax authority announced Monday that taxpayers who bought new passenger vehicles this year might be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 tax returns next year.

"For those thinking about buying a new car this year, this deduction may give them a little more drive to make their purchase this year," said Internal Revenue Service commissioner Doug Shulman.

"This deduction enables taxpayers to buy now and get cash back later on their tax returns."

The deduction is limited to the state and local sales and excise taxes paid on up to 49,500 dollars of the purchase price of a qualified new car, light truck, motor home or motorcycle.

This "could save families hundreds of dollars and lead to as many as 100,000 new car sales," Obama predicted.

Germany is among European nations that have introduced a similar incentive program to boost car sales and help automakers badly hit by the worst global slump in years.

The German government offers the equivalent of 3,400 dollars to buyers of a car that is less than one year old, if they scrap one that is at least nine years old.

The program had helped boost German new car sales by 21.5 percent in February, while they fell almost everywhere else across the 16-nation eurozone.

In the United States, plunging auto sales have dragged overall retail sales, as the country reels from prolonged recession stemming from a home mortgage crisis.

Sales of vehicle and vehicle parts dropped 4.3 percent in February and were down 23.5 percent from a year ago and analysts say boosting the new car market may provide the magic to boosting sales.

The conundrum for American automakers is that currently almost a quarter of the demand is being met with the sale of a used vehicle, said online automotive analysis firm Edmunds.com.

More than 20 percent of car shoppers who researched new vehicles actually bought a used vehicle, it said. The company predicts that the trend accelerated in March.

"No automaker can sustain itself if the new car market doesn't open up soon," commented Michelle Krebs, senior editor of Edmunds' AutoObserver.com.

"It's time for legislators to do something material, such as introduce scrappage laws, offer tax credits or temporarily lift sales tax, or at least increase the existing tax deductions on car loans."

But the Automotive Aftermarket Industry Association cautioned against the "cash for clunkers" proposal, saying it would threaten jobs in the independent aftermarket industry by removing repair opportunities for vehicles and raising the cost of used cars and parts.

"It seems arrogant to destroy perfectly good vehicles with many more years of useful life just to entice consumers to purchase a car that they might not be able to afford," said Kathleen Schmatz, AAIA president.

"This is hauntingly reminiscent to the home mortgage debacle when consumers purchased homes they could not afford."

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