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Wednesday, November 19, 2008

Bailout Debate, Part 4: Alternatives

Cheap loans are not the only way to aid the domestic auto industry, there are some other policies that might be a big help in the longer term, and insure the success of the short term loans. Here are a few:

1) Encourage demand. Congress could offer tax credits for people who buy a new vehicle (it could be only for fuel efficient vehicles, to pacify the Democrats). Congress could make interest on new vehicle loans tax deductible.

2) Limit supply. If we placed import tariffs on certain foreign manufacturers who are determined to be unfairly supported by their governments, or whose governments don't allow free entry to U.S. made cars (Hyundai/Kia, for example), we could help domestic car sales. Or, perhaps, import tariffs on car makers who do not meet CAFE standards (BMW). Ronald Reagan is credited with saving Harley Davidson by slapping a 45% import tax on foreign made motorcycles.

3) Buy vehicles directly. The federal government could go on a buying spree, and replace most of its fleet of official vehicles with new ones. It could also give grants to the states to do the same. Consider all of the cars and trucks that the military, police, and other agencies must have.

4) Ensure availability of car loans. The government could take steps to require banks who have accepted TARP funds, and who are in the car loan business, to write car loans to people who have jobs and reasonable credit scores.


Anonymous said...

Like your blog but missing the boat on this one -

1. "Pushing a string" as they say. Unemployment and consumer defaults are skyrocketing. The world is in the process of passing through a huge credit bubble. Pushing consumers to take on more debit now is a horrible idea. People that are qualified for loans are getting zero percent anyway and good deals already - can't see how this would really help.

2. Right. Punish the successful care manufactures - most actually build cars here. Do you place tariffs on foreign manufactures that build cars here? Trade war during a recession (maybe a depression) - Check out 1930s to see how that worked out.

3. The Big 3 (still?) are pushing tons of cars to fleets already. This is driving down residuals and lowering the desirability - and they make almost nothing on these sales. Government should be saving that money for food and other necessities.

4. Kinda covered this in 1. Again, pushing the consumer to take on debit to save the Big 3 is pointless. The consumer is worried about jobs, food, housing and health care. The last thing they need is trying to cover new car payments.

The reality is Ch 11 is the only way ahead. Will it be painful? Very. Will it be a political hot potato? Yep. What we need now are the grown ups to be in charge (not sure if we have any in DC).

The Fed can help in a post/during Ch 11 by offering job training/placement, extended unemployment benefits and insuring that health care/retires are supported.

The Big 3 must restructure and Ch 11 is the only way this can happen. They have too many plants, to many brands and to much overhead.

Giving them any money now (no matter under what auspices) is a waste.

SYJ said...

Chap 11 will not work. Its a ploy to bust the union while acting like you give a damn about the big 3. republicans do not care if the Big 3 goes under because they are protecting the interests of the non union plants in the south.

There should high tariffs on cars imported from countries that dont allow US companies to do business there. This wouldnt be an issue with European cars sent here but it would be for South Korean and Japanese cars. I believe Obama said S. Korea only allows 5k cars a year to be imported from the US. That is crazy when you consider how many Hyundais have been sent here over the years.

Anonymous said...

When Republicans in congress oppose a bailout for GM, Ford, and Chrysler they are doing their job representing their constituents. People outside of Michigan are correctly asking how spending money on companies that can't turn a profit will do anything except waste money and add months of life before failure. The auto companies, the UAW, and possibly suppliers need to agree to a viable recovery plan before they can expect widespread support for government backed loans.

Anonymous said...

SJY - Ok, so what do you do about the Toyota, Honda, Hyundai and Kia plants in the US? Shut them down? How about the American car manufacturers that build cars in Mexico, Canada and Australia? Why not European cars? Would Saturn still be allowed to import 75% of its product line from Europe?

Why won't Ch 11 work? Besides making them "Asian" cars more expensive - how does that help any of the problems the Big 3 have?