A proposal for auto industry recovery

November 18, 10:24 AMPolitical Issues ExaminerJudah Freed

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A 1973 GM Electric Car.  Automakers have had the means to make better cars for years.

If we accept as a given that America cannot afford to let the auto industry fail with the accompanying loss of jobs throughout the economy, a congressional deal to bailout the cash-strapped automotive industry is not that difficult, but the competing factions need to think outside of their narrow boxes. If Congress and automakers and the labor unions have the courage to join forces productively in this national crisis, I'd like to propose the five key elements of a cost-effective U.S. automotive industry recovery plan:

1) Automakers Raise Private Capital
Support the auto makers in raising capital by selling off business units that do not support or serve their bottom lines. This can generate hundreds of millions in cash to meet current expenses while preserving most of the threatened jobs. General Motors could sell off its entire stake in Japan's Suzuki Motors, for instance, to raise about $220 million almost overnight.

2) Acceletate Fuel Efficiencey Fund Payout
Accelerate the payout of the $25 billion in the government-approved fund to boost fuel-efficiency. Target those portions of the auto industry already creating more fuel efficient or alternative powered vehicles, such as hybrids, electrics and vehicles with hydrogen fuel cells. One of the rules would be that all new hybrids must use electricty more often than gasoline, which is a relatively easy technical tweak. Reward innovation to induce auto makers and oil companies to resurrect those often-reported and yet long-buried patents for higher fuel efficiency. This approach will yield both economic and ecological benefits.

3) Goverment Equity Stake or Loans with Strings
Use $15-25 billion from the banking bailout fund (or from another source) for an auto industry bailout with the federal government taking an equity stake in the automotive companies in trade for providing the needed operating capital. Once the equity stake is repaid, the government would withdraw from ownership. This equity stake must not be without strings, however. Two conditions on the money would be strict limits on executive bonuses and requiring plant conversions for hybrids, plug-ins, fuel cells, or significantly improved gas mileage for internal combustion engines, e.g, at least 40 MPG by 2012.

Alternatively, Congressman Barney Frank wants federal loans rather than an equity stake, with the government being the first creditor in line for repayment. This is fine with me, providing automakers are required to submit a viable plant conversion plan. I'd like to see their draft plans due by March or April 2009. We must not allow the automakers to do any footdragging on plant conversions. We cannot let them act like Fred Flintsone, putting on the brakes by digging his heals into the dirt.

4) Consumer Auto Loan Guarantees
Allocate an additional $10-15 billion from the banking bailout fund to be used exclusively for consumer auto loan guarantees to stimulate vehicle purchases through 2009 into 2010. The loan guarantees would apply to purchases of new vehicles from any U.S. automaker, including the startups, not just those representing the Big Three. (This depends on whether we can favor U.S. companies and stay in complaince with world trade rules.) The loan guarantee also could apply to fleet purchases by businesses. To reward smart choices, buyers of vehicles with higher fuel efficiency, e.g., electrics or hybrids exceeding 40 MPG, should be eligible for higher loan guarantees. This part of the plan should be tied to the fifth element.

5) Consumer Auto Purchase Tax Credit
 Authorize a consumer tax credit for vehicles purchased between now and 2010. Tie the level of tax credit to the fuel efficiency of the vehicle purchased. Vehicles getting more than 40 MPG , such as hybrids or electrics, would earn the highest tax credit. These tax credits should apply to purchases of new vehicles from any U.S. automaker, not just the Big Three. The tax credit also could apply to fleet purchases by businesses. In tandem with the loan guarantee program, this would stimulate auto sales, which will help automakers regain profitability, improve the overall national to global economy, and reduce the emission of greenhouse gasses.

Putting these five actions together into one program is innovative, I admit, but all five of these elements have been tried and proven separately in other situations.

Logically, these five actions together will dramatically support recovery of the U.S. auto industry while empowering the bold startup companies inventing new 21st century vehicles that will help end our oil addiction.

All we need is the political will to make it so.

(See related story on congressional bailout actions)

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