Friday, November 21, 2008

The Right Way to Bail Out Ford, GM, and Chrysler

The government shouldn't bail them out but if they are going to (and they are), this is how they should do it.

Instead of the $25 billion bandaid, which is really only meant to bail out the union's bloated pension and benefits fund, they should help the big three get what they need most, customers for their product. Once the parties involved agree to a 40% pay cut for every single employee, at least until a return to profitability, to get rid of all the private jets and other extravagant bullshit they have, and present a revamped business plan, the government should offer a one time $20,000 tax credit to anybody that buys a new GM, Ford, or Chrysler. Here's why;
1. If they sold even 1 million cars (extremely unlikely), and every person that bought one was in the highest tax bracket (even less likely), it would cost only $7 billion. (20,000 x 35% x 1,000,000)
2. Instead of just saving the union pension fund, it would save the union jobs and it would save thousands of jobs at dealerships across America. More people still working are more people to help fuel the economy
3. The newer cars get better fuel economy, less emissions, and much safer than the older cars that people would be getting out of.
4. The massive sales increase would generate the revenue those companies need to survive.

Makes sense to me, how about you?


Gort said...

You are right that Detroit has to change it's business practices but it's not all the unions fault that the big 3 are in the toilet. Your idea might help with the short term cash flow problem but I don't think that the government should favor one industry over another. The companies that make washing machines are hurting now so do you hand out coupons to go buy one?

I'm a free market liberal which may sound like an oxymoron but I will explain my position/response over at my place this weekend.

Zen said...

You misunderstand, I am against the bailout. The UAW gave Obama $80 million for his campaign. Do you think it's remotely possible that he won't ensure that they are bailed out?

I accept that they will be bailed out. I am offering an intelligent way to do it.

Of course it isn't just the unions fault. Bad management is right there too. But let me ask you, why aren't Honda, Nissan, Lexus, BMW, and Mercedes in D.C. with their hand out?

prsent said...

If the auto industry wants to regain its prominence, it not only needs to change its business practices, but also build better carsl hire CEOs who know how to run a company; build better card; build cars that the market demands; and build better cars.

NEPAExpat said...

Fact is Chapter 11 is the only viable solution...

The problem is that many stakeholders with ties to DC will suffer as a result. To paraphrase The Clash, "should we stay or should we go". If we go, thousands of people would lose their jobs. If we stay, we perform a worse disservice to the taxpayer. We throw money down a sinkhole to organizations with NEGATIVE book values.

At least through bankruptcy, the organizations can punish shareholders and unions alike for bad practices.

We reap what we have sown.

Instead of promoting sound business practices, we have promoted pump and dump through the practice of minimal capital gains taxes. Until we send capital gains taxes through the roof and permanently eliminate the double taxation of dividends, we will have the same black hole in front of us five years from now.

Taxation is bad, but promoting unethical behavior that leads our nation to insolvency is much worse.