Obama: Rescue Detroit and Buyout Gas Guzzlers

Here is my take in the Financial Post on the missing link in all the debate and politics about baiing out Detroit and the four-million related jobs:

"The rescue of Detroit, and the four million or so related jobs, is a good idea, but the insistence that the Big Three produce fuel-efficient cars will guarantee failure again unless strict emissions standards are imposed immediately.

"There is another idea, however, that will help bring about a turnaround, clean the environment, reduce American dependency on foreign oil, dramatically reduce the trade deficit and help the economy plus Detroit. The U.S. and Canadian governments should devise a scheme to get the gas guzzlers off the highways.

"There are nearly 200 million vehicles in the two countries, many of which use too much gasoline, are fuel inefficient emitters or are obscenely oversized. A strategy should be put in place to retire these wasteful vehicles as quickly as possible in order for their owners to be able to buy new fuel-efficient cars made by Detroit and others.

"There are many ways to accomplish this, through tax incentives, government-backed loans, grants or changes to laws that allow rapid depreciation for fleets and corporate owners as well as commercial vehicles. While some may balk at such government involvement the facts are that it is in the government's interest (and society's) to rid the road of SUVs, mini vans, smoke-spewing junkers and the like.

Here are some ideas:
"-- Anyone with a car that does not meet new fuel-efficiency standards should be able to retrofit or to finance a new fuel-efficient car (or a used one that's efficient) with a cheap, government-backed loan from automakers. There should be no sales tax on such vehicles, no annual road taxes (where applicable) and possibly a grant to help defray the cost to lower income owners.

"-- The justification for this government investment is that once draconian fuel-efficiency standards are imposed, the after-market for guzzlers will continue to deteriorate or disappear. In a sense, such laws represent a legislatively-enacted "expropriation" of value in these undesirable vehicles so, also in a sense, it is arguable that governments should defray a portion of the cost.

"-- The other justification for getting this stuff off the road is to help save the environment, but it is also economic in the case of the United States. The price of oil has dropped, but so has the hunt for new supplies. And unless demand drops commensurately forever worldwide, which is unlikely, the price of oil will soar down the road. In other words, the current downturn has caused gasoline to drop in price but will sow the seeds for more economic disruption, deficit problems and the increasing transfer of wealth to questionable regimes or a handful of huge corporations which control oil supplies.

"Canadians, the biggest exporter of oil to the United States, are also wise to consider retiring their guzzlers from the nation's fleet even though we are more than self-sufficient in energy sources. That is because if Canadians reduce dramatically the amount of oil they use domestically (and transportation fuels are more than half of the use of oil), they can sell the stuff to the Americans, Chinese or whoever and enhance Canada's trade and economic future.
"To think that the Age of Oil is going to end before 2030 is wishful thinking. Long-term strategic plans should be put in place as soon as possible. To merely bailout Detroit, with its lousy management and proclivity toward producing huge cars, is a formula for disaster. And to bailout Detroit and force it to make fuel-efficient vehicles -- without forcing or encouraging consumers to buy them -- is also misguided."

Your thoughts?"

Comments

[Dave GM2]

Even with bailout plans in place, making a corporate turnaround is still a very tough job for the management.

I tried out various business strategies at http://rescue-detroit.industrymasters.com

This is the strategy that worked best for me:
1. Sell off the high stocks for Luxury Cars and SUV with reduced prices and high marketing budget
2. Rise customer service level to get more competitive
3. Invest in Compact Cars, Small Cars and Hybrid Cars as these segments grow a lot
4. Discontinue the old Luxury and SUV product lines

[CharlesJ]

I personally do not want to give up my 1/2 ton HD pick up. I want to be able to hitch my trailer to it, go camping, and travel some. I enjoy getting out and seeing new places and things. I know for a fact that detroit can produce a HD pick up that gets great mileage (30 + MPG). There have been several engines produced over the years in the past that were more than able to do this. However, to produce an engine that does just this hurts the oil industry severely, it also hurts the auto industry to produce such an engine as it also hurts them in the long term sales.
The Big 3 produce great vehicles in my opinion, they just do not produce those fuel effecient ones like they should and could. Every GM vehicle that I have owned I replaces when they were 10 years old and had in excess of 200K miles. When I traded those vehicles in, they looked only a few years old. I kept them up, kept them clean, maintained... ect. That is the difference, if you take care of your investment it takes care of you. Granted I had one truck that had problems, the electrical system failed due to a short
a wire missed in the bundling, rubed against the engine compartment and shorted everything out. But it took them only 3 hours to find it and do the repairs. Other than that not one problem ever.

[Paul]

Congress has ducked its responsibility on this issue for 35 years.

There is only one way these vehicles will disappear - raise the price of gasoline by taxing imported oil.

Use the money to build mass transit. Automobiles as a mode of transportation are not working anymore. American car companies can't make a profit and Detroit is the poorest big city in the US.

Americans are no longer going to be able to afford going into debt just for basic transportation.

[NerdGirl]

"While some may balk at such government involvement the facts are that it is in the government's interest (and society's) to rid the road of SUVs, mini vans, smoke-spewing junkers and the like."
___________________________________________________________________________

What should families do when they would all like to go out together? 2 adults and 3 children...how do you get 2 child seats and a pre-teen into the back seat of a Prius? If it's a road trip, that would mighty uncomfortable.

I'm all for a cleaner environment and less dependency on foreign oil, but I am not for people telling me what car I CAN buy or have. In the long run, it is more environmentally friendly for people to keep the cars they already have rather than 1) produce more cars to replace those cars 2) dispose of the cars they are already driving.

[drkazmd65]

Here's one of my thoughts about your comments.

"Anyone with a car that does not meet new fuel-efficiency standards should be able to retrofit or to finance a new fuel-efficient car (or a used one that's efficient) with a cheap, government-backed loan from automakers."

OK,... so once again,... those of us that were thinking ahead, and that actually BOUGHT a car that was efficient (for example my Mazda Protege, ~37-40MPG real world), and that have it paid for, will get no 'help' from the Government that we pay taxes to? AND those Yahoo's that bought a Hummer or other land-sled will get a interest rate break, or a tax incentive break that I didn't get when I acted responsibily a couple of years back.

So,... when I decide it is time to retire my Protege,... do I get Government aid in buying the Aptera plug-in Hybrid Electric car I think would be really cool?

Once again,... the "Tragedy of the Commons" bites the responsible in the ass.

[67bug]

I'm not giving up my Bug!

[KillTheMessenger]

To replace 100 million vehicles would cost approx. $2 trillion. Not to mention that it can't be done much faster than at the current rate of obsolescence. Would we build out factories to ten times their current capacity just to shut them down in a couple of years when they are done producing?

Hardly.

It took us decades to get into this mess, it will take decades to get out of it. That's how the real world works.

[drkazmd65]

Well put,.... as usual KTM - reality is never quite so simple as the idealists (myself generally included) want it to be.