$25 Billion to Automakers -- Better Idea
 

Instead of giving $25 Billion to the "Big-3", I have an idea. Why not benefit both the average citizen and the automakers by offering to buy-out the difference on discounts.

Economy cars could benefit the most. For that kind of money, you could knock $10,000 of the price of a vehicle, get people in newer, more efficient vehicles, and kick-start the industry.

Say a new, base-model Ford Focus is $15,000. With the "Harrell Stimulus/Rebate Program", that car could be sold for $5000, and the automakers get the difference to continue operations. Think of how many people could afford reasonable financing on that.

Agree? Disagree?

-Rick Harrell (RH77)

RH77-

I usually agree with most of your posts...but have to disagree on this one.

I love the idea of getting to buy cheap cars but the only problem is the Big 3's operating budget includes the sale of their cars at near-current pricing. To liquidate their stock just to build cash revenue leaves them drastically short on income (which would ultimately trickle down to layoffs...something the government will not let happen on a large scale). While they might sell alot of cars quickly they would probably be making less money in the long run because they have to sell 3 cars to make what they used to on one car.

When the Big Three builds a single car and settles on a standard price for that car they also build that income/revenue into their operating budget. Selling cars at manufacturer cost does little to nothing to settle the increasing debt and losses they have incurred. Unless you're talking about being able to liquidate their entire stock for upwards of billions on dollars it just doesn't benefit them. And, you're assuming that Americans currently have money to buy a car...even at a drastically discounted rate.

Can you explain your maths a little more?

Here's my two seconds of calculation...

25b divided by, 170m registered voters... Is slightly less than $150 per person.

Voters, because if you're not going to participate and therefore help the system - the system shouldn't help you. Plus, you have to be 18, which filters out all the 3 year olds :p

For the 10K figure... My math says that would be for 2.5 million cars... Or ~1.5% of voters.


That aside, it will likely destroy the resale market.

GM lost almost $40 billion last year...it takes alot of $5000 cars to make that up!

http://www.bizjournals.com/columbus/...1/daily14.html

edited to add the near $40 billion source

But they'd still be getting $15K per car.... From the OP:

The $10,000 rebate has to come from somewhere. If it comes from the government...it comes from the taxpayers. If you're one of the people buying a $5000 car you're happy to pay an extra $150 in taxes a year. If you're not...you're not a happy camper.

We're already tagged with $700 billion of debt with the recent bailout. The United States just became the worst credit card abuser in the country. You know...you finally get the credit card paid off and swear to never use it again. Then, one small $100 purchase and the next thing you know it's back at a $5000 balance.

I knew as soon as the government started giving handouts...it would open the floodgates.

Hi,

If money is going from the government to the auto makers, it out to be based on results: they should be able to build models that get a minimum combined fuel mileage of 25mpg (better aero and other virtually "free" efficiencies!), and this should increase by 1 mpg per year. Any models that get less than this must be priced to include a 10% penalty that the government gets to collect to pay back the taxpayers.

If they can build the efficient cars and sell them, then they get R&D money from the government and maybe some tax credits.

The USA should adopt the same diesel standards as Europe; and also the best models sold in Europe and Japan, etc., should be immediately sold in the USA.

All car companies should immediately improve their existing models, to get the efficiencies as soon as possible. If the whole country -- the whole world is going into a slowdown, then the car companies must take their lumps along with the rest of us.

I thought it was supposed to be a loan. Before you say, "good luck with getting that back," I agree: I'm as cynical about the management of the big 3 as anyone. On the other hand, I recall that Chrysler did pay back their bailouts back in Lee Iacocco's days.

The recent $700 billion bailout is not completely a loan...unlike anything we've seen before. The recent bailout financial institutions received includes a government stake in the company and while partial loans were floated to banks to reverse the poor credit market those companies that were essentially (or in some cases declared) bankrupt were revitalized with government buy-ins. Some of the money was earmarked to be used to extend credit to consumers while some was destined to simply reverse debt and cover FDIC insurance for lack of funds to cover it.

Neil...I think we're moving in the direction of minimum mpg standards for vehicles. After rejecting GM's recent request for $10 billion to assist with the Chrysler merger the government countered with the speeding up of a $25 billion package for the development of fuel efficient vehicles. That $25 billion is a straight loan. Story below...

U.S. rejects GM's call for help in a merger - International Herald Tribune

That's what I'm saying.... there's not enough money in the 25b to give out. That $150 figure was how much each voter would have to pay to reach 25b (therefore, that 25b would take $150 off the price of the car, not $10K), not how much that would need to be paid to reach $10,000.... Which is why I wanted to hear more from RH77 :D

Got ya Treb...thought you were asking me to explain my theory.

Great discussion!

After seeing the CEOs and higher-ups around the table with Nancy Pelosi on the news tonight, I had a feeling that they would get the "low-interest loan" they are seeking.

My idea was to offer a "counter-offer". The money would go for every unit sold -- the advantage would be that cheaper vehicles are generally more efficient, and appeal to the masses. Make something even cheaper, and cut the difference.

To clarify from the Focus argument, $5000 would be financed or whatever, and the Gov't either loans or grants the remaining 10K to the auto companies. True, the resale market would tank, but read on...

Observation: the public isn't buying new cars, and probably won't for a while. What can we do to help the Citizen and Manufacturer both? Sending them a pile of cash gets us what? Not loaning them money gets us what, also?

I'm just brainstorming an alternative. I don't expect every American to run out an buy a cheap new car, or have an offer for a large amount discounted -- am I wrong in the estimation that something similar could boost the economy into creating jobs and putting money back into the system? $150/person is nothing compared to what the Federal Government racks up in debt every day. We simply need jobs to run this big system of ours -- and they're drying up.

Another stimulus plan is at hand, but the goal of the argument is helping the Big-3 retain jobs in the U.S.

Disclaimer: I'm not an Ecomomist by any means, it's just something that came to my mind during the news. More jobs = consumer confidence = spending = tax income = more jobs...

-Rick

More more more... I really dislike that philosophy. :mad:

What, bottom-up instead of trickle-down -- or is Reagan a hero of yours?

Raygun, my hero?!? Nuh uh!

Where is it written that a satisfactory existance cannot be had without growth? Where is it written that retraction is automatically a bad thing? I'll tell you where... EVERYWHERE! :mad: Doesn't make it right.

I see your point. But if we "retract" to give up jobs elsewhere, even in those markets that may be able to sustain themselves otherwise, is it true shrinking?

It's all tied to the population. If the pop is growing, then the economy should grow too if each individual is to enjoy prosperity at least equal to the predecessors. If the pop is stable, there is no need for economic growth, if the level of prosperity had been sufficient. And it follows that if the pop declines, the economy can decline too without imposing sacrifice on individuals.

Of course there is more to it than that.

I'm not trying to be a smart arse, I'm just inquiring as to your theory -- to learn about it.

So, you're proposing that we force ourselves into more of a flat population growth like Europe. Problem is, that's a tall task for the U.S.

We don't have the education system to compete in the World market (without major reforms). Many jobs in Europe are in the service sector. The UK has 73% of their jobs in this division. That means financial services, etc.

I'll be honest, this is really getting beyond my expertise. From what I've studied, the U.S. has an expectation to at least get to the point we were in say, 1999. The existing population will continue to grow based on religious, traditional, and patriotic reasons.

With that, the mindset likely won't change in our lifetime. So, there lies the conundrum. We cannot sit idly by.

-Rick

"With that, the mindset likely won't change in our lifetime. So, there lies the conundrum. We cannot sit idly by."

Yes, we will sit idly by until the facts of resource depletion hit home. And I consider a square inch of peace and quiet, free from "development", to be a resource too.

It still doesn't answer the question, where do you get your money (rhetorical)? We still have to pay taxes and buy essentials. It either requires a job of sorts, or welfare.

Anyways, back to topic -- the car companies may get a big loan tomorrow.

Rick, so first - you are to be applauded. Unlike so many others, you're laying out a solution rather than saying the somewhat cliche "something should be done" or the very obvious "we need to create [noun]s."

Allow me, for a moment, to offer a counter ripple to the cheaper vehicles (as I read, smaller) appeal to the masses... In very recent history, small cars were not appealing to the degree of large ones - for both mfr and consumer. That's why we have so many large vehicles on the road at the moment. I believe (feel free to poke holes), that smaller cars are becoming appealing mostly if not only due, to operations costs (essentially, cost of fuel becoming the largest cost of a vehicle).

Fuel is currently 2.314 according to AAA - and prices are falling. That $10,000 would buy 4,321 gallons of gasoline... At 15 mpg, that equals 64,822 miles

18mpg = 77,787 miles
20mpg = 86,430 miles

I foresee the consumer interpreting the 10,000 as roughly 5 years of free gas, deciding that they can now buy the bigger vehicle... Effectively putting a delay on the current issue - these cars and the economy they are building are not sustainable.


It comes down to the cultural fundamentals. At some point, we lost the ideology that better = better and replaced it with more = better, among other things. I think we are more in a dire need for a cultural revolution rather than an economic one. Somewhere along the lines, a sense of nationalism became synonymous with entitlement (beyond the nationalist entitlement to a sovereign country). One could blame marketing and advertising - but ultimately, it's the consumer that's wooed.

If the consumer is incapable of determining that they can't afford and go through with it anyway - it's the consumer that has a problem. That applies to automakers too, as consumers of resources.

Why stop at 3 automakers?
Why not give $5B each to:
1-GM
2-Ford
3-Chrysler
4-Tesla
5-Zap!

These are my top 5, but others could be substituted. Also, how about a few $B to the companies that do EV conversions? If we (we being our elected officials) are so intent on "freeing ourselves from foreign oil", then put our (our being us taxpayers) money towards that end, not to reward a few companies for narrow minded mis-management. [\rant]

Tesla needs to become viable before I call it a car company and therefore worthy of such loans. Right now, they're a company that makes cars - but operating on VC money and not on vehicle sales (which, since 2006, is ~1,000 at the moment). With time, I think they'll do it - but until then, it's an experiment for lack of a better word :)

Whatever is in the works for the Big 3...it better happen sooner than later...
GM 3rd quarter report story below...

GM reports $2.5B 3Q loss, says running out of cash: Financial News - Yahoo! Finance

Obama press conference today...supposed to address economy (or lack of) and auto industry..."stand by to stand by"

For what its worth, I firmly believe that it is the auto industry that will pull us out of this economic mess. Here is how it will go down. GMAC and Ford will become Banks, And by banks I mean their lending institutions not the car building side. By doing so they can go to the Fed window and ask for stimulus money to fund their loans instead of doing it through bonds as it is currently done. Once they have the liquidity to loan money by borrowing @ 1% you will likely see interest rates on car loans drop to 1.9% lets say for 60 mo instead of 6.9% + currently.

That ease in interest will bring consumers back into the car market and jump start this recession. The climb out will be slow, but mark my words it will start with the auto industry.

Remember what I said in the previous post ... Well how about that, today I learned that GMAC was applying to become a Bank, in order to take advantage of the bank bail out money. Also rumored was that Ford was following suit.

If nothing else this is going to change the way we buy cars. I am also predicting that showrooms and large lots will be a thing of the past. Holding on to 600 cars in inventory is a gigantic drain on dealers because they are paying interest on everything sitting on the lot. Instead, dealers will reduce themselves to locales with a couple representative models for you to see and test drive, then order your vehicle, built to your specs and delivered on a specific date.

Hi,

I would suggest giving $1 Billion each to GM, Ford, Chrysler, Honda, Toyota -- and and all established car companies with production in the USA; and give $1 Billion each to Aptera, Tesla, (maybe ZAP! if they can show they are legit) and any other start up that has existed for say 4-5 years. We should not play favorites, or pick winners.

This totals ~$8 Billion; leaving 17 Billion.

Pay $7 Billion to the first car company to start production of a car that seats four-five that gets at least 50mpg on the combined EPA test. (The Prius already gets 40+ on the combined...)

Pay the remaining $10 Billion to the first car company that starts production on a 2+ seat car/vehicle that gets at least 75mpg on the EPA highway test. This car/vehicle would have to be a plug-in hybrid, or be a biodiesel, or be a pure electric with a range of 100+ miles.

I would hope that whatever is decided as far assistance for these guys that some of it would be trickled down to the local dealerships. From what I know dealerships in my area are losing as much as $200K per month because of this slow down.

If nothing is done to help them stay afloat, no amount of money may save local economies ...