A REAL Auto Industry bailout solution

First things first. It is absolutely and unequivocally wrong to just hand over money to these fat cat/old boys club companies (i.e. Ford, GM and Chrysler), regardless of concessions or promised reforms.

Don't get me wrong, I feel for the economy and the automotive industry is a crucial part of it. That's why I do favor a bailout of sorts, just one that might actually help the greater economy in general and not just the "big 3".

For too long, the "big 3" have been lining their pockets and letting excess consume them. They were content with the status quo, and seemed more focused on "fluffy" upgrades like design and interior gadgets rather than substantive improvements like fuel efficiency and quality. Don't get me wrong, they have made good (not great) inroads in these last two categories lately, it's just that it was seemingly too late.

They also continually gave in to Union demands and allowed employee costs to escalate into the realm of ridiculousness. I'll never forget a headline from 3 or 4 years ago, that struck a cord with me and demonstrated the dire nature of their situation long before any of this recession talk.

"GM's health care costs overtake steel costs on a per vehicle basis".... Really? There is more cost per vehicle in employee health care than steel? I mean, I realize things have moved towards plastics and other synthetics, but come on! It's a freakin' car! The backbone of the thing is steal!

I've said, since the moment I read that headline, that they were a company with deep routed problems that likely were not going to go away any time soon, or easily.

I also laugh at the idea that you have to buy from the "big 3" to support workers in North America. That's just plain wrong, all the other major players have several plants in North America and that number would only increase if their sales were to cannibalize the "big 3's" sales.

So what's the solution? Should we just hand over tax payers money to these poorly ran companies and keep them afloat? For what? Another couple years of existence? I say no.

I say; "LET THE CONSUMER DECIDE"

Look, what's more important? The "big 3" surviving or car sales increasing? What would have the great impact on the economy? I think the obvious answer is absolutely car sales increasing.

That means auto makers move inventory, meaning they get to keep producing cars and dealers get to sell cars and consumers get cars that are (hopefully) higher in quality and get better gas mileage. Meaning EVERYONE in the auto industry gets helped and the consumer saves money by not needing as many repairs and consuming less gas. It also would help the environment in the long run and help to decrease dependence on foreign oil.

So I say, give the people, the consumers HUGE rebates/discounts on new car purchases. Let them choose which car companies should survive with their purchase choices. If the "big 3" really do make the best vehicles and therefore deserve to survive, people will choose to buy them over the other players out there. If not, they will wither and die as they should in a properly running free market. It's survival of the fittest, just the way it should be. The truth is, consumers have been voting with their wallets for a long time now. This will be their "final" battle if you will. An "Auto Referendum" if you will.

Here's the details:

1. Instead of the Government just giving the "big 3" billions of dollars in bailout money, give it directly to consumers to spend on vehicles in the form of discounts.

2. This way, car companies don't have to lower their prices, but sales should increase significantly. The consumers basically choose which companies should survive by choosing to buy their vehicles. It's completely fair and equitable to all the car companies regardless of country of origin.

3. Huge tiered discounts on the purchase of NEW vehicles only. Something like this:

• $2500 off any new car under $10,000.
• $5000 off any new car between $10,000 and $20,000.
• $7500 off any new car between $20,000 and $35,000.
• $10,000 off any new car over $35,000
  

(Obviously those numbers could be tweaked slightly, but the point is, they need to be huge discounts to really shock the industry and make a substantive difference in sales)

4. You could even promote the "big 3", by requiring the consumer to test drive at least 3 vehicles from 3 companies (obviously they can test drive more if they choose). But a minimum of 2 of those being have to be from the "big 3". You would have a form that each dealership would need to sign off on saying you completed a test drive as proof. Once you had the minimum test drives completed, you would then "qualify" for these discounts.

5. It comes right off the top. The consumer doesn't pay the full amount first and then receive this as a tax rebate. For this to work properly, it has to be an immediate savings to the consumer so that those people requiring financing are only financing the discounted price and the benefit feels tangible and "real" to the consumer. I would set it up so that the dealership figures out the total price (pre-tax) and then subtracts the qualifying discount; this is the amount the consumer pays. The dealership then submits a claim form to the government with all supporting documentation (bill of sale, licensing info and the test drive requirement form). The government then pays the dealerships the discount amounts. This ensures the government only hands out money, when and if, it is actually used and benefiting the economy as a whole.

6. The rebates obviously would only be eligible on new car purchases not used, but you include further restrictions on what is done with the current vehicles that consumers would be disposing of or trading in (Obviously first time car buyers are not affected). For example, only cars that are 10 years or younger could be traded in (for resale) at dealerships or personally resold. To qualify for the discounts, anything older than that would be part of a dealership recycling plan, whereby the dealership takes the vehicle giving the consumer scrap price for it and then in turn would be collected by government approved recycling facilities. This helps to ensure that these less environmentally friendly vehicles don't get recirculated into the market place. It would also help to ensure that the used vehicle market would not implode but suddenly being flooded with the fresh supply.

7. The number I've seen tossed around for a bailout package was $10 billion, and that was just Ontario. I think this plan could be implemented for a similar cost, except for the entire country. As of 2006, there were approximately 18.7 million passenger vehicles in Canada. If even 10% of those people were to purchase a new vehicle, (a reasonable estimate by any measure), and let's say the average qualifying discount was $5,000; then the tab for the government would be $9.35 billion. Not only that, but it would have resulted in over 1.87 million vehicles being sold. Talk about injecting the economy with new life! (Obviously there is potential for a much greater cost, but I believe the potential benefits outweigh the risk of that)

Basically, we'd be looking at a whole bunch of new cars on the road using less gas, giving off less pollution and there would be a huge boost in overall economic activity. Where's the downside here??

I might be leaving some things out, but if anyone has any comments or questions, I'd love to hear them.