Saving The Car Industry One Sale At A Time (GM)(F)

November 4, 2008 by Douglas A. McIntyre

Ford1John Dingell and other slippery congressmen and governors who get free meals and martinis from car company lobbyists went to the Federal Reserve and begged for $10 billion to help GM (GM) finance a buyout of Chrysler. All they were asking for was capital to help put 60,000 people out of jobs as part of the consolidation.

The federal government stiff-armed them. It would not look good to be an agent of increasing unemployment.

But, there is another alternative.

The Treasury still has some of the $700 billion that Congress gave it left and the Fed has the right to pass out money to non-banking entities. That means there is still capital floating around which has not been committed.

One of the most popular programs for helping people stay in their homes is to reset the value of mortgages by bringing down interest rates or decreasing monthly payments. An auto industry bailout might take a page from that.

Detroit and its peers from overseas can only hand out so much money to people who want cars. Most offer zero rate financing and "cash back" to folks who can still afford a new set of wheels. None of this was enough to keep GM from losing 45% of its vehicles sales last month or Ford (F) from losing 35%.

If the auto industry is still an essential part of American manufacturing, and the government wants to find a way to aid it, the money could go directly to helping the car buyers and not the car companies.

Giving every person who buys a new vehicle $5,000 from the federal government may seem like socialism at its most magnificent, but it would almost certainly stimulate sales without giving a bone-headed auto executive like Robert Nardelli direct access to capital for his private plane. A car-buyer assistance package would not be any more counter to capitalism than giving banks money to keep them from faltering.

What would it cost? Fifty million dollars for every 10,000 vehicles sold. In October, the entire domestic market did not represent close to 900,000 sales Moving that up by 100,000 extra units would have made a remarkable difference.

Who would not like a new car? Some of those dreamers could actually buy one with a little help.

Douglas A. McIntyre