A Rational Alternative to the Auto Bailout

In these days of bailouts and handouts when the government is making remarkably free with our money, there must be some point at which we draw a line and say “enough is enough.” Tens of millions of us tried with letters and calls to our congressmen to stop the $700 billion plus bailout of the banks and though some of them stood up as heroes, we didn’t win the day. Now we have an opportunity to make another stand on a smaller battlefield where we might be able to accomplish something.

Right now the Senate is considering proposals for a bailout of the auto industry at a price tag of at least $25 billion and likely closer to $50 billion. Well, not the whole auto industry, just the poorly managed, corrupt and inefficient part of it which has let unions bully them into a financial hole they seem unable to get themselves out of. We’re not worried about the well run, efficient and profitable plants run by companies like Toyota in Mississippi or Mercedes-Benz in Alabama.

This is mostly a Democrat plan, but they’ll probably need about a dozen Republican votes for it to pass. This creates an opportunity for some Republicans to hold out for a more sensible approach to helping the auto industry than just handing a bag of cash to a group of corporate buffoons who have already proven their incompetence and lack of vision. Using a cash infusion to keep them out of a much deserved bankruptcy rewards them for their failures and does nothing to pressure them to change the way they do business.

Instead, Republicans and the few sensible Democrats should hold out for a more rational, market-based solution to the car industry’s propblems. Use the market and some simple common sense to drive car manufacturers out of debt and towards more rational business practices.

On average about 12-13 million cars are sold every year. Last year sales were down to about 10.6 million, which is why the domestic manufacturers are hurting. What the car manufacturers need is a resurgence of sales and that can be accomplished without handing out government money.

It’s a simple solution. Instead of $50 billion in handouts, offer the equivalent in tax credits to consumers. Give each person who buys a new car a tax credit and customize the amount of the credit to encourage wiser spending and motivate the car manufacturers to build better cars.

Start with a base credit of $1000 for buying a new car if it is assembled in the US, or $2000 if it is made by one of the big-three domestic manufacturers. Add $1000 if the car gets 30 mpg or better, or $2000 if it gets 50mpg or better. Add another $1000 if it uses an alternative, renewable, low emision fuel (at least 80% ethanol or biodiesel), or $2000 if it is a plug-in electric. So that’s a potential total tax credit of $6000 if you’re buying a domestically produced electric car. More typically tax credits will be around $4000.

A tax credit effectively adds directly to the income of the consumer, the equivalent of being a discount off the price of the car. This ought to generate at least 4 million additional car sales in a year, at a cost of about $15 billion in lost tax revenues. Let the program run for three years and you come in under $50 billion, and give enough time for manufacturers to adjust production to meet demand for more fuel efficient and alternative fuel vehicles. Secondary benefits would be lower emissions, more money in the pockets of consumers and more reasonably priced cars on the used car market for those who can’t afford a new car even with a credit.

The big-three are going to complain that their existing inventory which is sitting on lots costing them money isn’t well suited to take advantage of the highest of these tax credits, so they need to retool and produce more compact vehicles, but they’re out of cash and credit is hard to come by. So offer them loans, but with strings attached in the tradition of Teddy Roosevelt’s square deal. Make the loans contingent on changes in management. Require them to bring in new CEOs with proven track records from outside the auto industry and require them to make at least 20% of their board members company employees. Next, institute accross-the-board 20% reductions in pay for executives and workers. Finally, bar unions from using any of their members’ dues for political purposes, including lobbying. Similarly, bar the companies from lobbying or other political activity until their loans are paid off.

Already far too much money has been spent trying to solve our economic problems with virtually no accountability. This auto manufacturer aid package is the perfect place to start thinking more sensibly about how we can reduce the cost for the taxpayer and make certain that the largess of government produces the best results for the nation. It’s a lot better than just paying Detroit to make the same mistakes again.

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About Dave 536 Articles
Dave Nalle has worked as a magazine editor, a freelance writer, a capitol hill staffer, a game designer and taught college history for many years. He now designs fonts for a living and lives with his family in a small town just outside Austin where he is ex-president of the local Lions Club. He is on the board of the Republican Liberty Caucus and Politics Editor of Blogcritics Magazine. You can find his writings about fonts, art and graphic design at The Scriptorium. He also runs a conspiracy debunking site at IdiotWars.com.

3 Comments

  1. It’s a simple solution … offer the equivalent in tax credits to consumers … [to] each person who buys a new car …

    The tax credit (in the absence of spending cuts) is the same as increasing the debt: it simply spreads out the cost of those marginal credits across the entire economy. That shows up as inflation, the worst possible tax (if only because people tend to blame “greedy capitalists” for increased prices).

    … customize the amount of the credit to encourage wiser spending …

    Any government incentive is an inducement to make dumb investments … such as buying a new car when the money might be better spent elsewhere. It’s a market distortion that is always foolish and destructive. It simply reinforces the demans for government to pick winners and losers in the economy.

    If you want to solve (part) of the automaker’s problems, eliminate government interventions like CAFE standards, coercive labor laws, and design restrictions.

    More important: allow the incompetent businesses to fail. The jobs and equipment won’t just vanish into thin air, they’ll just be applied to efficient production under different leadership and rules.

  2. Bill, I’d just as soon see the automakers go bankrupt or gobble each other up until 1 or 2 survive.

    But I’m looking for ways to sell slightly better market based alternative options to a public increasingly enchanted with government power and socialism, hence a compromise proposal like this.

    And a tax credit isn’t a problem if the government cuts spending to go with it. And as you probably agree, there’s a hell of a lot of government spending we can do away with.

    Dave

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