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 problems. 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 emissions 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.
Article comments
— go to most recent comments1 - Mark Schannon
Dave, first of all, tell the editors that this new system of splitting articles is a fucking disaster. I just wrote a fairly long & brilliant analysis that got wiped out after I went back to the first page to reread your piece!!!
Gardnabbit. Now I'm afraid to go to page two for fear of losing this.
Anyway, I'll try to recreate it.
Fascinating, thought-provoking piece(and it's important enough that I'll ignore the digs on unions and plug for ethanol.)
Certainly, it's a better idea than the kind of bailout Congress will approve with strings with the strength of damp paper. More important, it's an intriguing concept--using the marketplace to force change to a system that has traditionally fought change every step of the way.
Some may fuss over the details, but that would be a mistake. The real value in the article is that introduces a pretty radical concept that should be considerered. Once the concept is understood & accepted, then we can question how many cars would be sold, what kinds of fuels should be encouraged, how quickly Detroit can retool to meet the demand, and if the tax credits are enough to stimulat the necessary demand.
Regardless, very good article. You libertarians are smart fellows...sometimes, LOL.
Be interested to see the feedback on this. Cover your head & protect your privates.
Curmudgeon-At-Large
In Jameson Veritas
2 - Dave Nalle
Mark, I agree on the split page thing. When I can I'm now boiling articles down to fit on one page if I think they are important and I want them to be effective and actually read.
As for ethanol, I'm actually not a fan. I threw it in there to appease the farm belt. It WILL get stuck on any bill like this just because they will need midwestern votes.
The latest is that Pelosi's bailout proposal is apparently stalled, so this is a time when an alternative suggestion like this could be considered if some moderate Republican like Graham or McCain put it forward.
Dave
3 - Ruvy
Dave, Mark,
You know, I was chatting on facebook with a friend from Northern Ireland. She said: "Well, I didn't think it would have been so quick... it really is tumbling Reuven, I was quite surprised at the domino effect. The destruction is truly amazing. House repossessions, mortgages, home loans..."
Then we went to neighbor's house for Sabbath dinner. The hostess keeps a sharp eye on the market in the States, and on events there. While she was cutting a salad and we were sitting in the salon:
"Reuven, did you know that the big three automakers have only enough money until December 31st?" Our hostess went on about (I think) "one in three homes that will be in foreclose proceedings in next year."
I mentioned that I had read that Obama said he would try and bail out the big three. She said, "So what? Everybody is afraid to buy a car in case they lose their jobs."
I shrugged. I know how that feels. I've been there, done that and bought several T-shirts. The conversation went on to other things, and eventually we all sat down to eat.
In short, Dave, you have a great idea. The only thing you need to fear for it, is fear itself.
If the auto-makers in the States indeed do fail, you are going to have one doozy of a "recession" on your hands. Obama is going to spread the "wealth"?
Did you the hear the one about the farmer who brought his pig into the bar.....?
4 - Dave Nalle
If things get bad enough that no one is willing to spend to buy anything, then the best strategy is for companies like the big-three to shut down operations altogether and reopen when the market will support them. Just throwing money at them will do more harm than good if we're at that point.
Dave
5 - Lisa Solod Warren
Actually I have heard ideas very much like this floating around progressive radio sites all week.... I just hope someone actually proposes one to someone who will do something. I really like the idea myself of not giving any money to any of the big three until they completely reorganize (see Thomas Friedman) and NO new money but rather speeding up loan already promised last summer (which is 25 billion already). But anything creative that does not involve new money just being handed out with no stipulations IN WRITING would at least get a listen to by me.
What Paulson and the government have done so far is ridiculous and, like I said in my NO BAILOUT plan piece, it hasn't worked. I didn't think it would.
Market still going down. Consumer confidence still going down. Economy still a mess. Layoffs galore. Hmmmm. WHAT WAS that 700 billion dollars for? Kenn's piece is apt, too.
How come Paulson, who is supposed to be so smart, is so dumb? And everyone else bought into it, when the DUMB Americans, didn't buy it?
6 - Lisa Solod Warren
PS Mark, Re you reply and losing it....
Try, if you are gonna do a long one and want to refer back to the article, composing it in word...so you can save it. Otherwise, yes, you will lose it if you refer back to the article.
But then you found that out, didnja?
7 - bliffle
the article just recommends patches to particular companies that are in the news. But the basic problem is the extraordinary powers that are granted to ALL corporations, compounded by the willingness of citizens to accept the lame excuses of corp executives.
Take the case of GM. To anyone who observed this company dispassionately for the past 30 years it was apparent that they had a Going Out Of Business philosophy working in the executive suite.
For example, the deferred benefits accorded to workers were just used as a delaying tactic to postpone the reckoning long enough for the execs to clean out the GM treasury before leaving it an empty hulk. They could do it because they COULD do it by corporation rules, and because an ideologically compliant state allowed it and because a public was willing, even eager, to participate in the fraud.
In a better society, either pensions and health plans would be handled by the government or corporations would be held to their commitments (like, putting up the money to support their promises).
But we chose a third option: fake promises. Sometimes that's called 'fraud'. But it was so easy to do!
We have to reform the laws of incorporation or else we'll be right back here discussing the next industry.
We have to hold people responsible, and that includes CEOs as well as the distraught homeowners that constantly get critisized.
8 - Ruvy
Waking up to the hangover from the Obama victory parties, I see. Bad headaches all around, eh? Shot of Jameson's anyone? A nip of the "Bush", perhaps?
Bliffle's suggestion, rewriting the laws of incorporation and compiling them as a "uniform laws on incorporation" - something that could be applid overseas as well - looks like a better idea than Dave's. Someting that Dan Miller might want to look at.
Relying on corporate toadies (legislators at all levels) to reform the joke of corporate democracy seems as useful as having a nip from from the dog that bit you. That is the only problem with Bliffle's idea.
Nevertheless, Dave's idea deals with ma sh'yésh - the issue at hand, in other words.
9 - Mark Schannon
Ruvy, bring a pig into a bar??? Oy, get thee to a Shul & do confession & a few hail...Sarahs or something.
Ruvy & Lisa, it's too soon to tell if the bailout (as done so far) is going to work. Everyone said it would take time, and there are some indications that, at some levels, liquidity is improved.
What Paulson's directing his attention to now is that liquidity simply doesn't exist for small businesses, student & car loans, and credit cards...so he wants to try to loosen up those markets as well.
I have no idea if he's right or not. I'm still waiting for Congress to pass legislation that will make it possible for banks to void the contracts they have with the people who bought the bundled mortgage loans (which forbid any renegotiation of rates).
And then, the gov't needs to set up an organization like one they had during the depression (forget the name) that bought mortgages directly from banks at a discount and then renegotiated with homeowners.
When that program ended, the government had actually made a profit.
But back to Dave's concept, I don't know how to put into place, but I'd love to see it become part of the public debate.
And Ruvela, my friend, what hangover from the Obama victory. Are you already celebrating the Failed Obama Presidency? Well don't. I've got a draft of an article about that, LOL. (Ol' Jug Ears has got to be saying to himself, "Why the hell did I want this job again???)
And Jameson is good any time...if those bastards start sending me bribes to keep promoting that booze.
In Jameson Veritas
10 - Dan(Miller)
Meanwhile, back at the ranch, Robert Reich,
To the limited extent that anything presently being discussed makes sense, this does. Despite concessions last year, union members working for the Big Three auto makers are paid $20 - $30 per hour more than comparable workers at U.S. plants owned by non Big Three auto makers. Executive pay and perks at the Big Three also seem quite excessive, particularly for companies which have shoveled themselves into as deep holes as they have. That current economic conditions generally result in fewer people buying news cars does not help.And, It strikes me that supporting the ethanol farce as suggested in Dave's article (which in a later comment he indicated he thought a not great but nevertheless politically expedient idea) is grossly ill advised. Ethanol subsidizes have already caused gross distortions in the economy, resulting in increases in food costs -- not only for food made directly from corn, but also for food such as beef which is dependent on cows which eat largely corn-based feed. It may also be worth noting that cows need to eat in order to produce milk. This is true world-wide; for example, in Panama, a hundred pound sack of horse feed (essentially identical to cow feed) which six or seven months ago cost around $11.00 now costs $16.50.
The on-going bailout, from most accounts I have read, was initially a pig's breakfast and is already becoming a pig's dinner feast. Does anyone really think that the same brilliant folks who brought us that are likely to do better this time? Strikes me as highly unlikely. Auto companies have gone out of business in the past and perhaps the best way to go now. The consequences of that will be draconian, but probably less so than keeping the Big Three on very expensive life support, when it seem very likely that their condition is terminal in any event.
Dan(Miller)
11 - El Bicho
Mark, just because you don't know how to work your browser doesn't mean the system is a disaster.
12 - Dan(Miller)
Ruvy says (Comment #8)
Thanks but no thanks.That said, I don't think the laws on incorporation are all that bad, and I can't imagine how they could be applied overseas in any event were they changed. Somehow, I can't see in my crystal ball other countries, for example, France, Russia, Spain, China ,et al taking a lively interest in supporting such a thing.
Moreover, while stockholders theoretically can control what their corporations do, that simply does not happen where large or even medium-size corporations are concerned. Let's assume that I own a thousand shares in GM (I don't have any, but let's assume that I do), and that I get the fifty or so pages of stuff which accompanies the proxy and notice of shareholders' meeting. How much time would I devote to reading it, analyzing it, and voting, by proxy or in person? The issues are far more complex than in voting for a Democrat or a Republican in a general election, and even with full disclosure, which is provided with even less frequency than in a general election, it would be almost impossible to make useful decisions unless I devoted my life to analyzing GM. Even then, I would more likely than not make the wrong decision. Perhaps if we had MSNBC and Fox News* to help it might be different, but alas we don't.
Sorry about that, but I think that the beatings will continue until morale improves.
Dan(Miller)
*snicker snicker barf
13 - handyguy
Why can't GM just reorganize under bankruptcy protection?
Clavos made an interesting suggestion on here recently....spend the money directly on the displaced workers [train them for new jobs], and let the companies go under if it happens.
About the split pages...on Firefox you can open pages 1 and 2 in separate tabs and go back and forth without losing either. I guess you can do this on Explorer too, but why use that anyway?
14 - Dave Nalle
Ok, going to try to hit everything in one comment.
Bliffle, as usual, points the finger at the wrong culprits. Robert Reich has it right, as Dan Miller brings up. While there's some very bad management at these companies, the root of the problem is the deals struck with the uniions, an unholy alliance which has fed the beast and led to this problem. Union wages in Detroit with benefits included are about double what workers in auto plants in other states are paid, and that's ridiculous. No way a business can operate under that burden no matter how well it is run.
I've corresponded some with Reich and he's a very sharp guy. His book Supercapitalism is first rate. He's an interesting contrast with Paul Krugman. They came to prominence at about the same time, but while Krugman is all ideology and partisanship, Reich is remarkably sensible and pragmatic. Despite the fact that's he's from the left I'd trust him to run the economy, while I wouldn't trust Krugman to run a convenience store and not go out of business. With Reich likely to be in the Obama administration I probably won't get the interview he promised me any time soon, unfortunately.
As for the ideas put forward in the article, they may get some play in Congress. The various parts of what I suggest, like the idea of a tax credit and the idea of a 'square deal' reform of the industry have been proposed by people who more people listen to than listen to me. I'm just the first to put together the idea of the tax credit, scaling it to incentivize purchases AND the industry reforms into what a complete auto industry aid bill might look like, at least as far as I know.
Oh, and as for ethanol, the reason why the subsidies there and also with biodiesel have been so disastrous is that the subsidies have been aimed at the manufacturers rather than the consumers. The subsidy should be in the form of a per-gallon tax credit for alternative fuel consumers as it was prior to the last energy bill. That works much better.
Dave
15 - Jet
the GOPs rationale is easy to understand, the Big Three go belly up, and the resulting economic catastrophe can be blamed on the Democrats.
Of COURSE they don't want to help them stay in business!
16 - Dan(Miller)
Handyguy, you ask, Why can't GM just reorganize under bankruptcy protection? It probably can. If the bailout does not happen, and even if it does, bankruptcy seems likely. However, not all that many people are buying new cars these days anyway, and how probable does it seem that the folks now in a position to do so would want to buy one from a bankrupt company? Warranty protection, recalls in the event of a problem, and all that sort of stuff would probably be perceived as big deterrents, even if below rate financing and rebates were to be available, which they probably wouldn't be. Besides, why buy a Chevy or a Ford when you can buy a better Toyota or Kia or other car for less?
As to training laid-off workers for new jobs, what new jobs?
Dan(Miller)
17 - Mark Schannon
El B, instead of being snide, how about telling me how to do it? Better watch out or I'll have you arrested under the Americans With Disabilities Act...neener, neener, neener.
Handguy, tried using FireFox many years ago & had nothing but trouble. Hoping IE8 is better, but I'm also hoping to wake up tomorrow with a full head of hair.
One thing about letting GM go under...last I heard, 1 in 10 American jobs were dependent on them in one way or another. The whole "post-manufacturing" American theme reminds me of the post tech bubble when 20 somethings were telling me that P/E ratios didn't mean anything anymore. Oops.
If other companies can manufacture here, then we should be able to do it. It's going to require both management & labor breaking out of their concrete mentalities & addressing the real needs of the 21st century...or in their cases, the 20th century. Baby steps. Baby steps.
18 - STM
The rational alternative to auto industry bailouts in the US is to have the US car manufacturers design and build cars that people actually want and that don't use up the rest of the world's remaining fossil fuel stocks in the process.
Detroit has been way behind the eight ball, which is the real reason it's in so much strife.
19 - Ruvy
Mark,
And .... what hangover from the Obama victory? Are you already celebrating the Failed Obama Presidency?
During the
obscene screaming and arguing passing fordebate that preceded this election, I told you all whay I favored Obama; but I also told you that no matter whom you elected, you would have hell to pay in one variety or another - that it didn't matter whom you elected.The background noise that inspired Dave's article - the sound of the American economy collapsing under its own debt - was the reason that no matter who was elected, that presidency would be still-born - not failed.
I could get Biblical on you and quote the prophecies from Isaiah 60 on all this, but I won't bother. YOU folks are experiencing a "wealth transfer" of huge proportions - and the farther we in Israel are from it, the better.
Barack Obama will be a "wpread the pain" president, using mellifluous words to cover up the fact that America's economy - once the richest on earth - is now an empty dream.
20 - Lisa Solod Warren
Sorry Mark: Here we disagree. The "bailout" or whatever we want to call it, could have/should have been structurd completely differently from the get go. It was, from the beginning, just a handing out of cash with NO limits, to companies who had, for years, been making stupid decisions that resulted in more stupid decisions. Paulson panicked, the government panicked, and WHOOPS....there went several hundred billion dollars. IF an economic stimulus/savior package was needed (and I am not saying something wasn't called for) it needed to be handled in a more thoughtful, careful way. This has just been proved by Paulson's backpedaling and reshuffling and by the fact that nothing he thought would happen has happened. ANd by the fact that people are still standing around with their hands out asking for more (no strings attached) cash.