Don't Give the Big 3 Automakers Federal Money
Give It To U.S. Consumers As A Warranty
But What do We Know? After All, We've Been Advising Automakers to Build Smaller, More Fuel-Efficient Cars for the Past Six YearsThe Big 3 Automakers reject bankruptcy, warning that consumers will not want to buy new cars from bankrupt automakers for fear that repairs would not be forthcoming.
Fair enough. So, what if the government guaranteed warranties for car buyers? The federal government, through the Federal Deposit Insurance Corporation (FDIC), has been guaranteeing bank deposits since 1933. It could do the same with auto warranties. This, in fact, should cost the government far, far less money than continually throwing bailout billions at Detroit.
With the Big 3's sales dropping by 50% (from over 7 million units toward 3 million), we're looking at less than $1.5 billion annually for these warranties. Five years of these warranties on every car sold would be less than $8 billion, while GM alone is looking to receive more than $30 billion. And, at some point, the car companies should be recovered enough to pick up--or drop--this expense.
It's hard to see how GM, and perhaps Chrysler, can succeed without bankruptcy. Much attention has been focused on their labor union relationships, but auto manufacturers are locked into any number of business relationships that are keeping them from returning to profitability (e.g. the exclusive local franchise system that makes little sense in the age of the internet).
All of this needs to be reviewed by an independent third party -- say a bankruptcy court -- which can assure that all stakeholders in these companies make adequate sacrifices to enable these companies to be financially viable.
Lack of consumer confidence has made our country's financial crisis even worse--and yet the vast majority of resources have been aimed at corporations rather than consumers. Guaranteeing warranties for bankrupt automakers would be a relatively inexpensive way to bolster confidence, boost sales, and speed the American auto industry on the road to recovery.
And it shouldn't stop there. The purchasing power of government has been recognized by the Obama Administration--and ridiculed by the opposition party. (LA Governor Bobby Jindal singled out federal auto purchases for criticism in his response to the President's speech to Congress). Governments at all levels should use this opportunity to purchase (needed) green vehicles.
And consumers should be given further incentives to buy. Auto sales have dropped to the lowest level in decades. Recovery will only come with sales, not government dollars. Perhaps, high mileage car buyers could receive a "super" warranty in recognition that these cars are setting the stage for technology breakthroughs to come.
Maybe these "super warranties" could include roadside assistance, say, from Better World Club, the nation's only eco-friendly auto cl...Wait, we're getting carried away here. This isn't about Better World Club.
It's about getting the Big 3 healthy again. Federal warranties could be the most cost-effective route to that goal.