So after I posted a month ago (gosh I need to start publishing more of my thoughts more frequently) about my TADA bailout plan, I figured I should take a look at our country’s auto industry bailout. Again, let me preface this with the fact that I am not an economist, I just play one on the internet/tv/my dreams.

So if you read my last post, you know I prefer giving money to lots of people, not just a few, so as to spread the impact any stimulus can have as far as possible. So this leads me to my latest stimulus idea which was cobbled over dinner with my Dad the other day (mostly his idea btw). Lets incentivize people to get rid of their old cars.

There are 200 million cars on the road in the US (give or take a few million), a huge % of them are over 10 years old. So let’s take the 30% (60 Million cars) and find a way to turn them into sales for our domestic car companies and save jobs here in the US. Its so simple its almost ridiculous actually.

So instead of giving $50Billion or more to the car companies directly, lets earmark $25Billion annually for a “Clunker Trade In Credit”. So if your car is 10+ years old, gets under 20MPG highway, and is worth less than $5k, you can qualify for a $5k trade-up credit. Now there will be some key stipulations

1. New car must be predominantly manufactured in the USA
2. New car must get 30MPG Highway or better
3. You must have owned the car for 3+ Months
4. You must be a tax payer

So basically we would taking 5 Million clunkers off the road each year, recycling what we can of them, then boosting domestic car demand by 5 Million cars each year. So the most likely growth point in sales would be in smaller more fuel efficient vehicles.

Giving auto manufacturers money to keep building shitty cars is stupid. Giving them money when no one wants to buy their cars is also stupid. But giving consumers money to buy better cars and driving demand is smart. So congress, be smart.

8 Comments

  1. This is a better idea than anyone in DC can think up…but, then again, that isn’t saying much.

    Where does the $25,000,000,000 come from?

    It comes from taxpayers. So, what you are essentially proposing is that you take money from everyone (including those who are saving wisely), and give it to people who are buying new cars.

    The problem is that the people that are buying new cars are some of the same people that got us into this mess in the first place. When they buy the new car, is it financed? Does the consumer go into debt just to get a shiny new car, when his old one was getting him from A to B? If yes, then the problem is exacerbated.

    I drive a car that is almost 15 years old. It suits me fine. I’m saving my money so that one day I can buy a new car. But this proposal eliminates that choice for me. My income and savings are going to fund other people’s new cars. Morally, I think that is wrong.

    Sure, some of them have saved, too. Good for them. They are able to buy the car that they deem most valuable for themselves. And that is their choice.

    I agree with you that bailing out failed automakers is not smart. But in my opinion, giving consumers money to buy new cars (foreign or domestic) is not smart, either. What we need right now is contraction, not expansion.

    C.R.E.A.M.

  2. This is a better idea than anyone in DC can think up…but, then again, that isn’t saying much.

    Where does the $25,000,000,000 come from?

    It comes from taxpayers. So, what you are essentially proposing is that you take money from everyone (including those who are saving wisely), and give it to people who are buying new cars.

    The problem is that the people that are buying new cars are some of the same people that got us into this mess in the first place. When they buy the new car, is it financed? Does the consumer go into debt just to get a shiny new car, when his old one was getting him from A to B? If yes, then the problem is exacerbated.

    I drive a car that is almost 15 years old. It suits me fine. I’m saving my money so that one day I can buy a new car. But this proposal eliminates that choice for me. My income and savings are going to fund other people’s new cars. Morally, I think that is wrong.

    Sure, some of them have saved, too. Good for them. They are able to buy the car that they deem most valuable for themselves. And that is their choice.

    I agree with you that bailing out failed automakers is not smart. But in my opinion, giving consumers money to buy new cars (foreign or domestic) is not smart, either. What we need right now is contraction, not expansion.

    C.R.E.A.M.

  3. I like your idea in theory but I don’t think it’s very realistic.

    The idea of creating more debt for Americans seems like a really bad one to me. I believe one of the fundamental problems that has led us to where we are at today is our addiction to credit. Too many of us are spending money that we don’t have, your plan would only perpetuate this problem.

    The other problem with this idea is the people that your plan claims will be eligible for the credit can’t really afford the purchase. One of the reasons they are driving cars that are 10 years old and worth less than $5k is because that is simply all they can afford.

  4. I like your idea in theory but I don’t think it’s very realistic.

    The idea of creating more debt for Americans seems like a really bad one to me. I believe one of the fundamental problems that has led us to where we are at today is our addiction to credit. Too many of us are spending money that we don’t have, your plan would only perpetuate this problem.

    The other problem with this idea is the people that your plan claims will be eligible for the credit can’t really afford the purchase. One of the reasons they are driving cars that are 10 years old and worth less than $5k is because that is simply all they can afford.

  5. @Jordan, the money is the same that would be “loaned” or given to the automakers now. They are going to keep coming back to the till asking for more forever.
    The issue is really of how to attempt to save these poorly managed companies that millions and millions of americans rely upon for their livelyhoods. Giving them cash directly seems ridiculous, but giving the consumers power to help them seems more sane than the alternatives.

    And Jordan, the government is already taking money from everyone who contributed and saved wisely and distributing it. I am just offering up a better solution to that issue.

    @Nick
    In Japan the government forces you to trade in your cars after 5 years, for 2 reasons. 1 it stimulates demand for cars locally made, and 2, it supposedly reduces accidents and traffic problems. They push #2 as the primary reasoning. 😉
    Regarding the credit crunch/addiction issue, I completely agree, people need to have slightly tighter credit allowances. But people also need to be educated better on credit issues. Too many people still think its free money. Maybe everyone should be forced to carry their money in cash, in gold dubloons, so its heavy and tangible.

  6. @Jordan, the money is the same that would be “loaned” or given to the automakers now. They are going to keep coming back to the till asking for more forever.
    The issue is really of how to attempt to save these poorly managed companies that millions and millions of americans rely upon for their livelyhoods. Giving them cash directly seems ridiculous, but giving the consumers power to help them seems more sane than the alternatives.

    And Jordan, the government is already taking money from everyone who contributed and saved wisely and distributing it. I am just offering up a better solution to that issue.

    @Nick
    In Japan the government forces you to trade in your cars after 5 years, for 2 reasons. 1 it stimulates demand for cars locally made, and 2, it supposedly reduces accidents and traffic problems. They push #2 as the primary reasoning. 😉
    Regarding the credit crunch/addiction issue, I completely agree, people need to have slightly tighter credit allowances. But people also need to be educated better on credit issues. Too many people still think its free money. Maybe everyone should be forced to carry their money in cash, in gold dubloons, so its heavy and tangible.

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