Surprise! Republicans make sense...on auto bailout

The first coming of Obama is near. Praise the One!

For he is bringing miracles to pass: I watched "Meet the Press" this morning and agreed much more with Sen. Richard Shelby, a dyed-in-the-right Alabama Republican, than with Sen. Carl Levin, Michigan Democrat.

Maybe this is a sign that the country is getting past red state vs. blue state stuff. When the policy rubber hits the road, what matters much more is whether something makes sense.

And Shelby had the edge here. Why should taxpayers fork out $25 billion or more to give to the clueless Detroit auto industry?

First of all, I think that we would have to see conditions that would fundamentally change the way Detroit does business.  They're not building the right products.  They did at one time.  They've got good workers.  But I don't believe they've got good management.  They don't innovate.  They're a dinosaur, in a sense, and I hate to see this because I would like to see them become lean and, and hungry and innovative.  And if they did and put out the right product, they could survive.  But I don't believe the $25 billion they're talking about will, will make them survive.  It's just postponing the inevitable.

Amen to that. I haven't owned an American car since the 1970s, when some insane impulse led me to buy a crappy Ford Fairmont. After that, never again.

We're a happy two-Toyota family at the moment, both of them hybrids (a Prius and a Highlander). Detroit chose to keep on making giant SUVs and pickups because they were more profitable than smaller cars. Until people stopped buying them.

And now the Big Three, who have shrunk a lot, want the federal government to reward them for making bad business decisions.

Not surprisingly, Rust Belt Democrats like Levin are on board with that. Republicans like Shelby aren't. This is one of those rather rare times I tilt toward the "R's" rather than the "D's."

In an LA Times opinion piece, "Earn the bailout, Detroit," Douglas Olin explains why lavishing cash on the auto industry won't work without getting a lot in return.

Maybe it's time for America to buy some broad-based social benefits in return for public investment in these companies. If the U.S. government -- on behalf of the people -- is going to spend considerable sums of public money and incur public debt to keep these institutions alive, let's insist on returns that benefit society as a whole, not merely Big Three shareholders, management and employees.

What might these public benefits be? Well, for one, isn't it time for Detroit to turn out a car that gets at least 100 miles per gallon -- and to do it in three years? Couldn't we demand, in return for public money, that management deliver dramatic new fuel economy standards, with appropriate rewards for success and sanctions for failure?

Since transportation (mostly autos) generates one-third of U.S. greenhouse gas emissions, can't we demand auto fleets that systematically reduce carbon dioxide emissions, perhaps the 30% by 2016 proposed by California?

The Vice Chairman of General Motors in charge of product development has called global warming a "crock." Yet this know-nothing expects taxpayers to ignore his astounding ignorance about a fundamental factor affecting car design and sales, and throw billions down a GM black hole.

I'm confident that Obama won't fall for this, though he'll face pressure from auto industry-friendly Democrats like Levin to write the Big Three a blank check. He's said that he won't do that.

And these statements sound pretty good to me.

Allowing the U.S. auto industry to fail is not an option, President-elect Barack Obama said in an interview on CBS' 60 Minutes that aired Sunday night.

"For the auto industry to completely collapse would be a disaster in this kind of environment," Obama said. "So my hope is that over the course of the next week, between the White House and Congress, the discussions are shaped around providing assistance but making sure that that assistance is conditioned on labor, management, suppliers, lenders, all of the stakeholders coming together with a plan — what does a sustainable U.S. auto industry look like?"

Not like it does now, that's for sure.

Comments

[ACR]

It looks like the folks in DC are hell-bent to give the stimulus package another try seeing as the first one didn't have any real effect.

This time it's the car industry.

While the sanity of blowing cash around and running the national debt up even further is questionable; it seems inevitable - so this time let's target unemployment, create AMERICAN jobs and pump up the economy all at one time.


Consider the following:

Manufacturing costs of motor vehicles are 65% labor (i.e.: W-2 income), that's not all direct but due to suppliers. GM alone has over 1300 suppliers. (That's a lot of jobs!)

1 in 10 Americans makes all or part of their income due to the automobile industry.

Money turns over 5 times in a year.
Thus a vehicle with a manufacturing cost of 20K produces 13,500 in W-2 income which in turn becomes a total of 65K in 12 months due to the 5 turnovers.
(This isn't magic, it's simply how the economy works.)

Our domestic car makers are saddled with legacy costs, most of which will reduce dramatically in 2010 due to contract changes. They need to survive to get there.

Our own over-zealous government with a virtual alphabet soup of regulatory agencies has been no help either.
Foreign competitors have worked off-shore collectively to meet various US gov't. imposed emission and safety standards, thus dramatically reducing those R&D costs. American car companies are prohibited from that by our FTC.

Make no mistake; it’s no surprise that once again government has been a major part of the problem.

Here's the solution.

Instead of either shipping cases of cash off to car makers; or sending us all another check:

Send out a voucher for say $1,000 good on a motor vehicle for the percentage of the vehicle that's domestic. (Civic = 70% Ford Explorer=80%)

Let those not interested in a new car sell or give away their vouchers (Ebay would be loaded with them in no time flat) and those that are so inclined can use as many as they can get their hands on up to the full MSRP of the vehicle.

This would bail out the car industry without giving them a dime directly
Further it would reduce the overall age of the nation’s cars which would in turn;
increase overall fuel economy & decrease pollution.

Strengthen the dollar!

Since vehicles with a higher domestic content would be moving better this would reduce our imports, strengthening our dollar which would in turn further reduce what we pay for anything imported ...like gas!


Jobs

Instead of simply bailing out a few big companies, this would cause such a run that it would create employment throughout the industry affecting over 1300 suppliers and their workers.
That would give the economy good swift kick right where it needs one!

Pays for itself!

Since money turns over 5 times, and the vouchers are only good for the domestic content of the vehicle, every dime would be spent in the United States creating taxable income.
What is the income tax on 65,000 anyway?
(Remember? 20K manufacturing cost = $13,500 W-2 income x 5 = $65,000)


Another Stimulus Package?

I'm sure you'll agree that this makes more sense than simply sending out checks; many of which will be used to buy new flat screen TV's usually made in Malaysia or some such place.

[Roger]

ACR,

Voucher idea sounds kinda interesting. However, the counterfit vouchers would find their way into the mix. Why does a person with a good paying job, need to be given a voucher? Focus on the terminally unemployed with some kind of work for a voucher system. So many hours of work for a $1,000 voucher. Using the MSRP as the starting point, IMO, would not work. A $32,325 MSRP for a pickup truck that currently is not selling at a (11-15-2008) Super Sale price of $16,500 is the problem. That is, the $1,000 (work for voucher) would need to be subtracted from the $16,500. Then maybe, the current inventory of unsold vehicles would be addressed. Problem, how is this terminally unemployed person going to get a loan?